ELECTION 2010: Coalition promises to make SME finance more affordable by changing bank rules

Opposition small business spokesman Bruce Billson says a Coalition government would try to make business loans more affordable by changing banking regulations that have made lending for mortgages far more attractive than lending to small business.

In the first major move from either party on the controversial issue of access to finance, Billson says the Opposition is concerned that banks have been “encouraged to be building societies” by regulations that say banks need to have less capital behind housing loans than they do for small business loans.

However, Billson argues that in most cases, banks require SMEs to provide personal guarantees or property security for business loans, which makes the potential cost of default much lower than is reflected by the capital provisioning regulations.

By working with regulators to adjust the capital rules for small business loans backed by fixed assets or personal guarantees, Billson hopes to bring down the cost of SME loans and make the sector more attractive to the banks.

“What we are keen to do is make sure that the regulatory framework recognises that small business lending risk is reduced when small businesses provide those mortgages and personal guarantees,” he told SmartCompany this morning.

“At the moment the banking sector is almost encouraged to be a building society.”

Billson’s concerns have been echoed by several seniors banking officials including NAB executive Joseph Healy, who expressed concern on ABC Television earlier this week that global banking rules were pushing lending towards mortgages and away from small business.

“It’s a real issue that is uppermost in the minds of many in the banking industry and a known issue with regulators, so we are committed to working with regulators and the finance sector to make sure that small business lending is properly rated,” Billson says.

The Coalition’s banking plan is part of a package of SME announcements unveiled yesterday, the centrepiece of which was a 1.5% cut in the corporate tax rate to 28.5%, which would come into effect on 1 July, 2013.

Business groups have welcomed the cut, although COSBOA chief Peter Strong has pointed out that many small and micro businesses won’t enjoy any benefit.

“Two thirds of small businesses are not incorporated at them so that will have no impact in any shape or form.”

The Australian Chamber of Commerce and Industry also welcomed the cut, although have raised concerns about the timing and size of the reduction.

“That is a solid step forward, though the cost relief is a few years away,” ACCI chief Peter Anderson says.

“It is not however the full measure of the ambitious tax reform that the nation needs. The Henry Tax Review recommended a 25% company tax rate. ACCI small business survey shows that small business rates both personal tax reform and company tax reform highly, as not all small businesses are incorporated. Capital gains and payroll tax are also areas in need of integrated reform.”

Strong was pleased with several other measures in the package designed to give small business a greater voice at a government level, particularly appointing a small business representative to the Board of Taxation.

The Coalition has also promised to require any new government policies to be accompanied by a “small business impact statement” in what Billson says would be reflective of the Coalition’s “small business first approach to government”.

Strong says the increased representation would be welcome and says the Coalition is “ahead by a neck” at this stage of the campaign.

“The thing we really like about the package is that there is a focus on the people behind the businesses,” he says.

Labor is still to announce its small business policy, and Billson says the Coalition will make more announcements in the areas of skills and innovation.