Small business should look beyond major banks for finance: Bluestone Mortgages CEO

Small business, often the poor cousin when it comes to securing finance, should look beyond the major bank to kickstart trade or fund their growth, according to the CEO of a specialist lender.

Even though small business accounts for 97 percent of all businesses in Australia, employs 70 percent of the workforce and contributes more than half a trillion dollars to the economy, yet a majority of them fail within the first three years in part due to the difficulties in accessing capital.

It’s a problem that needs fixing, according to Campbell Smyth, CEO Asia Pacific for specialist lender Bluestone Mortgages.

“According to a report by the World Bank and International Finance Corporation, Australia is ranked as the second easiest country to start a business, after New Zealand, and yet more than 60% of small businesses fail within the first three years of operation,” said Smyth.

“Most small and medium sized enterprises say that availability and conditions of credit are key barriers to their business growth.”

According to figures released by APRA, the big four banks are continuing to tighten their mortgage underwriting standards across the board. Figures for small business indicated that the so-called ‘low doc’ loans have declined from 6.4% of new residential loans in 2010 to just over 0.7%, following the introduction of the National Consumer Credit Protection Act in 2009, he added.

“We would be the first to agree that in some cases, and for some lenders, ‘low doc’ loans were based on poor lending practices and the fact that these have been stamped out is a very good thing,” said Smyth. 

“But it may be that the pendulum has swung back too far.”

Smyth said that two thirds (65 percent) of small business owners put themselves in a potentially precarious position by using their personal finance to fund their growth, including credit cards, where interest rates can be over 20 percent.

“And another common approach, using home equity to support a small business, is completely cut off when business operators can’t access a mortgage in the first instance,” he added. 

The problems are compounded for those who have had a previously failed business or a bad credit rating, as in most cases, it results in automatic rejection by a major lender.

In such a situation, it makes sense to look at options outside of the mainstream banks, added Smyth. In fact, non-banks make up a growing segment of the loan market. He said that small business owners should not hesitate to seek help from a specialist lender and/or broker with experience in this area. 

“Ask your broker whether they work regularly with specialist lenders, and make sure you choose a specialist lender with experience. Ask what proportion of self-employed people they lend to, for example,” he said.

“Make sure you question how a loan will be structured, as well as the premium you will be paying above standard interest rates if you have specific circumstances. What it all comes down to is that there are opportunities for the right borrowers even if they don’t meet ideal lending criteria. Being declined by a bank is no reason to give up.”