Focus on SMEs: Banks have no cents

Small businesses that have made it through the downturn are feeling the pinch as banks keep lending criteria tight.

Paul Sievers, of Devonport Electrical, said despite having a good credit history and owning his home, he had to fight for an overdraft of $5000 from ANZ.

He said it was unfair that small businesses wanting loans had to give their homes as security, when banks offered things such as tertiary packages to students, which came with unsecured overdrafts.

Reserve Bank figures show lending to business dropped to $72.67 billion in February 2011, from $73.17 billion in February 2010. That was a drop of 0.8 per cent but the 2010 figure was itself down almost 10 per cent on the year before.

Auckland Chamber of Commerce chief executive Michael Barnett said the complaint was familiar. In chamber surveys businesses cited finance access as their second-biggest hurdle. "A lack of finance is holding businesses back."

Businesses were turning to debt factoring - where unpaid invoices are sold for cash - instead of bank lending, from companies such as Interface Financial Group. Director Chris Reid said demand had grown strongly over the past eight months from businesses that could not get traditional loans. "If you are a small, owner-operated business the bank will want your home as security. A lot of people might not have a home or it might be fully mortgaged."

David Tripe, from Massey University's Centre for Banking Studies, said banks needed to hold high levels of capital to reflect the risk of small-business lending. "Businesses always insist they are incredibly low risk and the bank should be delighted to have such a low-risk customer but it's not always the case."

The NZ Centre for Small and Medium Enterprise Research at Massey University found 65 per cent of technology-based small firms in NZ relied totally on internal funding or relied upon a combination of internal funding, bootstrapping - where profits are reinvested into the company - and private investors. Only a small number had sought and raised finance from commercial banks. One respondent told the survey: "[Obtaining] debt financing is nearly impossible and we can't even get a bank overdraft facility."

Sievers said he felt the country's banks did not understand what it was like to be in business. "Small businesses run this country. I'm not talking a huge amount of money. They're prepared to give a student a $2000 overdraft, unsecured."

An ANZ spokesman said the bank had a range of options for businesses. "Decisions on finance for small businesses are based on a customer's credit history as well as their ability to repay the debt.

"We work with customers to ensure a level of borrowing they can repay comfortably while meeting the cost of running the business."

The process could be made easier by providing information so the bank could understand the business financial position.

Barnett agreed: "One of the things people forget to do is talk to their banks often so they can understand how your business operates, rather than leaving it until there's a problem."

Has this happened to you? Email business@hos.co.nz