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