On Friday 6 March 2009, the Federal Minister for Small Business, Craig Emerson, organised a Small Business Roundtable, to open the dialogue between the government, business and industry about issues associated with the provision of finance to small business during the global financial crisis.

The Roundtable was attended by the Minister and representatives from the banks (including ANZ) and small business organisations and industries.

The key themes discussed were:

Credit availability

There is a perception amongst small businesses that banks are restricting credit to small to medium businesses.

ANZ is still very much open for business and keen to support viable customers, demonstrated by ANZ's recent commitment to make $8 billion in new lending available this year.

There were also concerns of limited supply of credit to certain sectors. ANZ has made a commitment to work with the industry associations to identify any funding shortfalls that do exist sector by sector.

All businesses - including banks - are facing tougher conditions and this means banks have a responsibility to prudently manage risk. Making a loan to a small business that can't afford to repay is not good for the banks, for the business or the economy.

Price of Credit

Industry associations expressed their concern that the RBA rate reductions have not been passed on for business loans to the same extent as for home loans.

The reason for this is that banks do not price Small Business Loans off the RBA cash rate. Rather it's a combination of:

• the mix of retail deposits held by the bank
• short-term funding
• long-term funding
• risk requirements

The cost of short-term and long-term funding has dramatically increased over the past year, and remains volatile.

Regarding risk, small business lending is generally riskier than household lending because business conditions typically deteriorate faster and more deeply for small businesses than for households during economic downturn. The level of impaired business loans is currently fives time higher than impaired home loans¹, which means banks are required to hold more regulatory capital for small business loans than for home loans (up to three times higher).

Given the high costs associated with funding and risk requirements at this point in time, the banks have not been in a position to pass on the full RBA rate reductions.

ANZ has committed to pass on rate reductions to customers as quickly as possible when the cost of funds decreases.

Further information

A communiqué has been released by the Minister from Small Business that outlines the discussion and the outcomes from the Roundtable.

If you are experiencing any difficulties as a result of the economic downturn, or if you have concerns about your existing banking, contact your ANZ Manager or a dedicated Small Business Specialist to discuss how ANZ can support you during these times.

This article was written to provide you with an insight into the issues associated with the provision of finance to small business during the global financial crisis.

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¹ Reserve Bank statistics show that banks' loans 90 days in arrears for unincorporated businesses are at 2.2% versus 0.4% for home loans at the end of September 2008.