Rising house prices are hurting SME lending, report suggests

by Julia Corderoy27 Aug 2015
Australia’s rising house prices are restricting access to credit for small businesses and stifling young Australian entrepreneurs, a new report released by the Reserve Bank of Australia has suggested.  

The report, which published the conference papers and discussions of the RBA’s ‘Small Business Conditions and Finance’ conference, suggested that the flow-on effects of high house prices acting as a barrier to home ownership are hitting young entrepreneurs. 

“Some of the lenders expressed concern that the high level of housing prices may make it more difficult for young entrepreneurs to enter the housing market. In turn, young entrepreneurs may find it more difficult than established business owners to post residential security, which could reduce their access to small business finance at a reasonable price,” it stated.

“In particular, the high personal debt and gearing levels required to achieve first home ownership can negatively affect a borrower’s capacity to service additional debt, reducing the likelihood of receiving a small business loan approval. 

“Consistent with this, the lenders acknowledged that their small business borrowers are typically older, well established and own property with significant equity. The vast majority of approved small business loan applications are for these existing customers to refinance their facilities.”

But with the NCCP enforcing a higher standard of regulation, the importance of owning your own home to help start a business becomes even more paramount – which only hurts small business owners even more.

“In addition, according to one lender, the tighter regulations under the National Consumer Credit Protection Act 2009 (NCCP) have made lenders more reluctant to rely on guarantees from family members when extending loans to first home buyers; this may delay home ownership for young entrepreneurs and reduce their capacity to build home equity,” the report stated.

According to the RBA, there are more than two million small to medium-sized enterprises (SMEs) who employ more than seven million people and account for more than half of total income for non-financial businesses.