Small business ombudsman Kate Carnell, in a position created in 2015 by the Abbott government, says that the royal commission coming down hard on serviceability would dramatically escalate credit problems for small business “because banks are requiring small businesses to pass hurdles that were not put in place for them at all, but for consumers”.
Reserve Bank figures suggest that small business lending growth had already slowed to zero last year. It’s important because up until now small business has not generally had a problem over funding availability. The Productivity Commission’s report last June on competition in financial services found that most small businesses, which at the time wanted a loan, could get one, even if the loans were relatively expensive. One reason is that Australia already has stiffer risk weightings on capital lent out to small and medium businesses than other countries. Now the lending spigot within the banks could tighten even more.
The 2.2 million small businesses in Australia employ 4.1 million people, which makes most of them tiny. It also makes them politically sensitive, with their work far more likely to drive how they vote. When Bill Shorten took his war on business and aspiration right up to them last June, by threatening in government to reverse tax cuts for businesses with turnovers down to $2 million – still pretty small – horrified colleagues forced him to backflip.
But higher finance costs – or the cost to a business of getting no finance at all – could wipe out the $12,500 tax cut that a half a million dollar turnover business gets under the Coalition’s truncated company tax cut program, which started last July. The Coalition will be making a big election pitch to SMEs based on its securitisation plan to use its AAA borrowing power to buy packages of business loans from small banks and fintechs. But it is pointless having the federal government stepping up to act as the Business Bank of Canberra if regulatory over-reach in the wake of Hayne is undermining those whose job is business lending.