Entrepreneurial spirit being 'stifled' by lack of access to loans

by AB01 Aug 2013

Entrepreneurial spirit is being ‘stifled’ because of difficulties surrounding access to finance for small business, according to the Real Estate Institute of Australia (REIA).

REIA president, Peter Bushby, says that, according to ABS research into innovation barriers published in 2010-11, 20.5% of businesses employing up to four people were lacking access to additional funds. Of businesses employing five to 19 people, 22.8% reported the same issue.

“Bank credit helps these businesses to facilitate their on-going development without placing excessive strain on cash reserves or working capital. However, as they are often perceived to carry a higher degree of financial risk, small businesses can face higher costs when accessing credit from financial institutions,” says Bushby.

He says the fact that residential property is often used as security for lending to small business is problematic, particularly for younger entrepreneurs, because only two out of five younger Australians own their own home.

 “When it comes to real estate businesses (96% of which are small), lenders should be taking into account such assets as rent rolls, which provide strong cash flow stability. They tend to put all small businesses into one basket and that simply does not work.”

“REIA wants to see an Australian Small Business Credit Resolution Service (AUSBCRES), which would mediate between financial institutions and small business when credit applications are refused and ensure that all applications by small businesses are adequately and properly assessed.”

Bushby suggests that AUSBCRES would be created as a division of the Small Business Commissioner / Small Business Ombudsman.

“At his recent Press Club address, Prime Minister Rudd said, ‘We must improve the operating environment for small business in this country. This involves access to capital’. AUSBCRES would go a long way to assist.”