Is perception worse than reality for SME lending

                                                                                                                                                           21.05.2010

Federal Small Business Minister Craig Emerson believes that the perception of SME lending is far worse than the reality of the market situation.

Speaking at a roundtable organised by CPA Australia and attended by numerous small business and banking industry leaders, Minister Emerson said that finding solutions to squeeze on SME lending were difficult. The Small Business Minister went on to say that the Government will focus on encouraging competition in the banking sector to improve access to small business finance, but has ruled out introducing a specific Government guarantee for SME loans.

The roundtable examined a number of possible solutions to the funding squeeze, including the establishment of a Government-backed bank to lend specifically to small businesses.

However, ACCC chairperson Graeme Samuel dismissed this idea, saying the experience of a similar Australian body, the Victorian Economic Development Corporation, highlighted why governments should not become bankers.

The roundtable forum also discussed the idea of the introduction of a specific government guarantee for small business loans. This strategy has been prevalent following the GFC with some governments. .

However, Emerson stated that he had misgivings about the "moral hazard" problems that could be created if the guarantee led to risky lending practices.

The Government will instead continue to focus on encouraging new competition into the banking sector.  Attracting new foreign banks back to the market or helping to encourage capital to flow to Australia's smaller banks were two of the key platforms discussed.

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