Parliamentary inquiry prompts call for SME definition

A Parliamentary inquiry into access to finance for small business has called for uniform definitions of “micro”, “small” and “medium” businesses.

The committee, chaired by Labor backbencher Bernie Rippol, said in the report that the health of Australia’s financial system and the support of SMEs are of “enduring concern” to the Australian Parliament.

According to the committee, there is no single, universally accepted definition of an SME, with a variety of definitions used by industry participants.

“These are generally based on the size of a business’s annual turnover, number of its employees, the size of its borrowings, or a combination of these characteristics,” the committee said in the report.

“Evidence before the committee does not indicate that the absence of a uniform definition of SMEs directly restricts SMEs’ access to finance.”

“However, the committee considers that the SME sector would benefit from consistent, sector-wide definitions of ‘micro’, ‘small’ and ‘medium’ business.”

“Consistent definitions would assist analysis of the health of the SME sector and encourage greater use of the analysis by SME stakeholders.”

“A shared understanding of micro, small and medium business would also promote more informed policy and practice, and solutions tailored to the challenges faced by each kind of SME.”

The committee failed to outline how it would develop uniform definitions of these terms.

Peter Strong, executive director of the Council of Small Business of Australia, says the recommendation appears to be of far more benefit to the Government than the small business sector.

“It will make it easier for bureaucracy, but there are potential losses once you start trying to define the term ‘small business’,” he says.

Other recommendations to emerge from the inquiry include the following:

• The Reserve Bank of Australia should specifically track the impact of the introduction of Basel III on the cost of SME finance and residential mortgages.

• The Code of Banking Practice and the Mutual Banking Code of Practice should be amended to include a standardised notice period for notifying business borrowers of changes to loan terms and conditions that may be materially adverse for them.

• The Government should undertake further work to explore policy measures, which may strengthen the mutual sector as a “fifth pillar” of the banking system and thereby promote competition.

Responding to the report, SME representative body CPA Australia said while it supports the recommendation of a standardised notice period, it “does not go as far as CPA Australia recommended”.

CPA Australia wants a separate code of practice for banks and for the treatment SME clients can expect.

Meanwhile, the RBA said earlier this year that small businesses should find it easier to access finance this year as the economy picks up and competition in the banking sector increases.