Will the Banking Royal Commission affect SME lending?
The Royal Commission into banking misconduct is fully underway, but what impact could the outcome have on lending to SMEs in Australia?
The Banking Royal Commission has highlighted numerous instances of wrongdoing across the financial services sector since public hearings began in March. Originally scheduled to run throughout 2018, there are already rumours the inquiry will be extended to ensure a comprehensive examination of banking practices.
But could the Royal Commission's findings result in tighter lending to small businesses in the future? Will SMEs need to turn to alternative business finance solutions? Industry commentators are already beginning to fear the inquiry could have unintended consequences for enterprises.
A knock-on effect for SME lending?
SME loans were the focus of the inquiry's third round of public hearings, which ran from May 21 to June 1. Royal commissions have wide-ranging powers to investigate an issue, and the Australian government often enforces most of the inquiry's final recommendations.
Business owners celebrated the news that bank lending would be under the spotlight, with many feeling they had been untreated unfairly, particularly following the Global Financial Crisis in 2008.
If the Royal Commission discovers widespread misconduct among banks, the industry could undergo a significant overhaul, including the introduction of new regulations, penalties and fines. Complying with these changes could prevent banks from lending under previous criteria, harming SME growth. Marginal applicants with blips in their credit history would likely be hit the hardest.
"We must be careful that we do not make business lending harder and unworkable," said Peter Strong, CEO of the Council of Small Business Organisations Australia.
"The issue of mistreatment of those given loans must be separated from the issue of lending."
Is now the time to consider alternative finance?
It is too early to tell what impact the investigation will have, but trust in banks is likely to be at an all-time low once the inquiry wraps up, especially if further revelations of wrongdoing emerge.
The Banking Royal Commission's public hearings are set to conclude at the end of June, with an interim report due in September. A final report is currently scheduled for February 2019.
SMEs that face tighter lending in the future, or simply want to make a switch from traditional lenders, may wish to begin planning alternative finance options now. Solutions such as debtor finance offer businesses a different way to expand their operations or resolve short-term cash flow problems.
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