• Fintech Lending Crucial For Federal Government’s Little BusinessSmall Company Policy

    As a life-long entrepreneur and CEO of a Fin Tech company that serves the SME neighborhood, I was truly thrilled about the 2016 Federal Budget. After all, things left to such an appealing start. We were all informed weeks ahead of time that this would be a ‘budget plan for little company’, when the treasurer announced long-lasting cuts to the business tax rate, I was all setprepared to believe that this government really understood the needs of company and had the ideal strategy for the economy.

    How wrong I was.

    They clearly have no concept. About the day-to-day battles of entrepreneurs, the realities of cash-flow, and specifically how the huge banks absolutely fail the credit requirements of SMEs. In poker terms, this budget is the ‘tell’ that not a soul in cabinet has any real-life experience running a small businessa small company.

    In particular, I’m talking about the expansion of the instantaneous asset write-off arrangements. This need to be a huge development engine for little company and the economy, and the federal government is definitely plugging it for all its worth. On paper it seems like such a terrific concept; let’s enable companies to accelerate their tax write-offs and claim 100 per cent depreciation in the first year so that they’re encouraged to invest now, rather than later. In theory, the more favourable tax treatment of capital financial investmentcapital expense need to encourage Australia’s 2 million small companysmall company owners to go out and spend up big on brand-new productive assets such as Kelly O’Dwyer’s $6000 toaster.

    This spending will, so the thinking goes, get the money registers ringing to supply an instantaneous hit of financial activity. Furthermore, the investment in brand-new possessions will promote much better productivity which will stream through the economy to magically benefit punters (sorry, voters) as ‘tasks and development’.

    However there’s simply one big problem: the numbers don’t stack up.

    In order for businesses to take benefitbenefit from this policy, they require cashmoney in the very first locationtop place – to purchase the possessions. And here’s where the government’s policy hits the first snag. A lot of little companiessmall companies have extremely, really minimal cash restricted reserves. In reality, a current study discovered that Australian SMEs experience a cumulative money flowcapital shortfall of $26 billion at any provided time. Yes, that’s a lot of money. However you ‘d believe that our hyper-profitable banks would be keen to extend some credit to support our SME community and realise the potential of the government’s policy, right?

    Well no, actually. It’s typical prevails understanding among little businesssmall company owners that traditional banks make it unbelievably hard for entrepreneurs to access unsecured credit. A current research study by the NSW Business Chamber found:

    • Over 400,000 small businessessmall companies in Australia are in requirementneed money flow financing, but are not able to obtain financing from a bank or do not desire to use possessions as security
    • 37% of company loan applications are turned down due to a lack of collateral or security

    Sadly we live in a country where our banks mainly will not fund small companysmall company without domestic security. They’re consumed with real estate credit, since it’s a fast method making a simple profit. As one ex-bank CEO admitted, they’ve just become ‘glorified structure societies’. At the same time the government basically finances this with implicit federal assurances that keep house rates growing to appease the voters, and protect the banks. It’s a co-dependent relationship that entirely fails little company.

    The last laugh is on the federal government nevertheless; the banks’ hesitation to supply cash-flow lending to SMEs will ultimately doom the government’s asset write-off policy, and waste the uncommon opportunity of historically low interest rates to truly ‘grow the pie’. It’s failure of creativity on a grand scale.

    Maybe I’m being too cynical or overemphasizing the magnitude of the financing gap? Regrettably, no. We know how this story ends because we have actually been here prior to. The first version of this concept appeared in the 2015 Budget as a measure for ‘Tony’s Tradies’. So far, just $547 countless insurance claims were processed in a policy that anticipated $5.5 billion over 4 years. It was a flop then, and it’s a flop now. The factor is perfectly clear: the missing link is funding.

    So exactly what’s the option?

    Well there is some great news on the horizon. With extremely little excitement of federal government assistance, a vibrant market of fin tech and non-bank providers has just recently emerged to service Australia’s SME neighborhood with unsecured credit. eBroker.com.au represents 47 loan providers who have a strong hunger for business financing.

    Although the sector is growing quick, it still has a long way to go prior to it can plug the funding hole left by the banks. The federal government needshas to do more to support emerging non-bank business lenders. If they were major about this – and development more generally – we would have heard a lot more in the spending plan about alternative funding, Fin Tech and so on.

    Instead, it resembles we’re stuck to very same old co-dependent bank-government relationship for a while yet.

    Simon Isaacs the CEO of online business financing platform, eBroker.com.au. He is an emerging ‘Fin Tech’ leader and seasoned business owner with more than Twenty Years’ experience in digital platforms. He was previously the founder of Check-In. com.au, among Australia’s leading accommodation reserving websites.

    Categories: Business Lending


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