Which Banks Want Your Busines?

The Age

Monday March 22, 1993

Cathy Gowdie

The Government has promised to lean on the banks to get them to lend more to small business. But, as CATHY GOWDIE reports, the banks say they are lending as much as they can to ``viable" businesses.

ONE month before the election, the Prime Minister, Mr Keating, set out to woo small business. For small and young businesses, he said, banks were the main source of debt finance. But some banks, preoccupied with their own problems, were ``less active than they might be" in seeking out new business propositions.

The Investing in the Nation statement promised that the Reserve Bank would pay the banks interest on their deposits, which would increase banks' gross revenue by about $140 million on a continuing basis.

``The banks will be asked to utilise this benefit to increase their lending to small to medium-sized businesses to the maximum extent possible," said the statement.

A Small Business Extra ring-around of the big banks found them insistent that they were already doing their best to attract small business lending. (Figures were a lot harder to come by than assurances; small business lending is not listed separately in banks' accounts and each bank's definition of a small business is different.) ``If we could lend any more money to small business, we would," said the Commonwealth's chief manager of commercial services, Mr Dennis Roams. ``There aren't enough applications. Demand has been very flat, although we have undertaken a lot of initiatives in that general business area." Mr Roams said that the Commonwealth's special offer of a 9.5 per cent six-month fixed rate (no credit margin) had been successful, but he would like to see more small businesses applying for loans. The Commonwealth was working on further ways of attracting small business customers and Mr Roams said interest-bearing business cheque accounts were a possibility.

Mr Roams said putting up property security was not a prerequisite for all business borrowers from the Commonwealth; it would often help, but in ``a lot" of cases a loan could be secured against the assets of a business.

The Commonwealth's cash advance and overdraft rate for business lending is 10.5 per cent and loans can be approved at branch level.

Last year, National Australia Bank offered two per cent off its usual lending rate for ``productive investment" and in some cases paid the full costs a borrower incurred if he or she had to pay fees to get out of previous loans with other banks. A further incentive for small businesses to take all their banking to NAB came in the form of an interest-bearing cheque account.

The offer closed in October (the cheque account is still available), but according to a spokesman, Mr Haydn Park, ``we are continuing to be aggressive everywhere in the small business area". Mr Park said the NAB, like the Commonwealth, was actively seeking small business through a ``door knocking" program.

NAB's business lending rate is 10.2 per cent and loans can be approved at branch level. Businesses with turnover of more than $1 million can be serviced at NAB's 12 Victorian district commercial centres, which specialise in dealing with small and medium-sized businesses.

Westpac, according to a spokesman, regards small business lending as ``definitely a priority" and runs several sponsorships and seminars in the area. It has a special offer of a two per cent discount on its indicator lending rate, similar to the deal marketed by NAB last year.

This offer opened in September and is available to applicants wanting to expand small businesses, not to people wanting to start a business.

The spokesman said the bank did ``not necessarily" require property as security on such a loan; this was assessed on a case-by-case basis.

Loans would be approved at Westpac's new regional ``zone" levels.

ANZ has traditionally been one of Victoria's biggest small business lenders and so it is ironic that its problems have in part been caused by collapses among its many Victorian small business clients. Despite this, the bank's group general manager of public affairs, Mr Matthew Percival, said in a written statement that when it came to small business lending, ``nothing has changed".

``We have always been a provider of finance to small business ... We will lend for any viable and legal proposal based on ability to repay." Like the Commonwealth's Mr Roams, Mr Percival said demand for small business loans was low. Asked if ANZ believed the climate for small business lending was improving, his (written) reply was that ``banks are emerging from the recession well capitalised" and ``consolidating". ``These adjustments ... will ensure banks are better placed to lend to viable small businesses as proposals arise." ANZ sets its small business lending rates on an individual customer basis according to its retail index rate. (This is published each Monday in capital city newspapers and is 10.25 per cent at present.) The main consideration when assessing a loan proposal is ability to repay from cash flow; if security is required, property is preferred but the assets of the business are acceptable.

The four main banks _ and interstate, the state banks _ are the main institutional lenders to small business. Second-tier banks and building societies tend to focus on home lending and foreign banks on corporate lending. Two of the foreign banks, however, are worth mentioning because of their medium-size business lending niches.

The Victorian general manager of Barclays, Mr Ian Minchin, said the bank had continued to lend to business throughout the recession. ``We have certainly never been out of the market," he said. ``(But) you have to be more cautious in that recession affects business in different ways." Mr Minchin said the bank's business lending generally started at $500,000 and went up to $5 million. The bank preferred to lend upwards of $1 million. However, he said Barclays would sometimes be prepared to lend less to a small or medium-sized business if it was an existing client, or if the business was prepared to bring all its banking to Barclays. The bank's prime rate is 10.25 per cent, but fixed rate financing can be arranged more cheaply.

Another foreign bank, Citibank, is not a big financier of small and medium-sized business, but it lends in the $500,000 to $5 million range. Loans normally start at $1 million, but if there is an existing relationship with a client smaller amounts are possible.

Putting up property as security is essential to getting a loan with Citibank. The bank's reference rate is 8.5 per cent, reviewable every six months.

The State Bank of New South Wales last week launched a campaign aimed at small businesses, offering a one per cent discount on its reference rate. The three-year variable rate loan offers borrowers an annual interest rate of 8.9 per cent, with a margin for customer risk.

The bad news is that the offer is not open to Victorian business borrowers. The bank has a fledgling presence in this state but the Victorian regional manager, Mr Geoff Anderson, said it was still concentrating in getting established in the home lending and deposit taking markets. However, Mr Anderson said it was possible that the offer might be extended to Victoria later this year.

A few general points emerged from talks with these banks. If you want to improve your chances of getting a loan, you should: Develop a relationship with a bank. You are likely to get a better hearing if you are an existing customer or if you are prepared to take all your banking to that bank.

Show the bank you know where you are and where you are going. This could be the single most important point, but banks say it is often overlooked. You must explain exactly what you want the money for and how you are going to repay it. Take a profit and loss statement, cash flow forecasts and a detailed, well-structured business plan.

Show that you are committed; the bank will want to see you putting your own money on the line. If you are seeking start-up capital especially, you are unlikely to have much luck unless you are putting your own money into the business.

Be prepared to bite the bullet and put your home or other property up as security.