Working with the Banks on a daily basis, its easy to understand why tech savvy entrepreneurs are competing for their market share.
Innovation like PayPals venture into the small business loans sector, will force our banks to become more competitive and accommodating when dealing with SME’s who continue to be forced to meet ridiculous hurdles when trying to access capital.

Although our Banks would argue otherwise, in my opinion, other than continuing to channel huge amounts of dollars into property, our banks have played a very small role in helping SME’s grow during the post GFC years and the economic recovery in general.

If you were to look deeper into lending in Australia, you will see that most of the lending that does occur to businesses is supported by the security of Real Property. Banks have effectively homogenised lending to the lowest common denominator with very little room for negotiation when it comes to products, pricing or terms and they almost always rely on Real Property Security as a substitute to critical credit analysis ie. Where a lender would set pricing according to risk (pricing for risk).

This standardised form of lending has ensured that the Banks can continue to operate with the lowest cost base generating the highest returns.

Of course this has been great windfall for shareholders but at what cost to the real economy? Our property market is one of the most expensive in the world, we have one of the highest costs of living and yet our economy lacks efficiency and productivity has deteriorated dramatically during the past decade.

These imbalances are very obvious and have all been contributed to by the fact that capital in Australia is not channeled into the most productive areas where it will achieve the maximum return.

Banks play a critical role in our economy. We need them to be profitable and well capitalised but whilst they continue to remain protected from competition, remain “to big to fail” and continue to rely on government guarantees underwritten by our tax dollars, they should be forced to make a greater contribution to the growth and success of our economy or, to put it another way, should not be allowed to conduct their business in a way the that kills productivity and put into jeopardy the hopes and dreams of future generations.


SME’s have it tough when it comes to raising finance to help their business’s grow. Even when they are approved , its normally on a take it or leave it basis with facilities structured according to the Banks strict terms and conditions and without much flexibility.

Many SME’s have Business Loans secured against residential property, yet they are sometimes paying 2-3% higher than the standard Home Loan rate. Furthermore once approved, the Business owners normally have to adhere to strict conditions that the Banks impose, post the settlement of the loan. This can include having to repay the debt over a short period of time, annual reviews and the provision of annual financial statements (to mention a few) all of which can add considerable cost and interruption to the day to day running of ones Business.

Compare this to a PAYG (Pay As You Go) Borrower with no investment experience what so over. Assuming they have been in full time employment for only two years, Banks will lend to them for the purpose of speculative investment in shares or property with little to no questions asked. Further to this, they will do so at low Home Loan Rates over a 30 year term.  Cash flow tight, no problem, Banks will also allow a 5 year interest only tem and as long as you make your repayments on time, it is highly unlikely you will EVER have to verify your income over the term of the loan.  Talk about double standards.

So why are SME’s clearly so unfairly treated? I believe the answer is simple lack of “competition”. With the four major Banks taking the lion’s share of Business in the market, there really isn’t an incentive for Banks to offer new products, especially to the SME market where margins are extremely high and profitable for the Banks.

Yet, recently, some Non Major and Non Bank lenders have started pushing the boundaries when it comes to lending to SME’s and things are starting to look a little better for SME borrowers.

For instance Citibank, one of the largest Banks in the world, is offering residentially secured Business Loans for SME’s at Home Loan rates, with all the benefits of a standard Home Loan, including, interest only terms, cheap set up costs and 30 year terms with NO annual reviews. This sort of product is perfect for SME’s with lumpy cash flow as it allows the flexibility to repay only interest during low cash flow periods, and to make lump sump repayments when their cash flow allows. The product also has a redraw facility attached to it meaning that once cash is repaid back into the loan,  Business owners still have the access to those funds, no question asked, if and when they should require it. Citibank will even refinance an existing Business Loan on these same terms.

With volumes low in the Retail/Home Loan space, many Non Major and Non Bank lenders are looking at the SME market to prop up their loan books and following suit with their own innovative SME products. This is great news for SME clients and it has been a long time coming. My hope is that this trend will open the doors to a suite of new innovative products that will continue to evolve and benefit the SME market into the near future.

Of course, as many of these non Major, Non Bank lenders rely on the Broker Network to market and distribute their products, many of the products, lenders and options out there will not be known to the average person. So it is vital you speak to a Mortgage Professional to ensure you find the most efficient, competitive and relevant product available to you at any given time. And remember; always ask your Broker what alternatives to the Banks might exist to assist you with your goals.

Con Katsiouras – Director

Folio Finance Pty Ltd

Ph: 0388445555

E: con@foliofinance.com.au