Media Release Roundtable on Innovations in Small Business Finance
The Reserve Bank hosted a roundtable discussion on innovations in small business finance yesterday, along with the Australian Treasury and the Australian Finance Industry Association. The roundtable was chaired by Christopher Kent, Assistant Governor (Financial Markets) of the Reserve Bank.
Small businesses are very important for the economy, but they face challenges accessing finance. Entrepreneurs find it hard to borrow funds when they first start their businesses, and when they are looking to expand. There is a heavy reliance in small business lending on housing collateral and personal guarantees. Entrepreneurs also find loan application processes burdensome, and it can be difficult to compare products across lenders.
The aim of the roundtable was to discuss innovative financing options for small businesses that are emerging from outside the traditional banking system. The participants included representatives from non-bank lenders, government and financial regulators. A broad range of financing options was discussed, including debtor finance, cash flow lending and marketplace lending.
The participants highlighted a number of issues in the small business lending market, including:
- How to improve access to finance for small businesses while appropriately managing risk
- How to take account of collateral other than real property when lending to small businesses
- The availability of funding for new lenders to small businesses
Another key focus of the roundtable was how to improve the information available for both lenders and small businesses. Comprehensive credit reporting and open banking have the potential to improve access to finance by providing lenders with more information for making lending decisions. Small businesses could also benefit from receiving more information about their borrowing options, and the factors that affect their creditworthiness.
Participants agreed that innovation will be important for improving outcomes for both borrowers and lenders in the small business lending market. The Reserve Bank will continue to monitor developments closely.
The Reserve Bank regularly engages with businesses and associations on developments in the economy and the financial system. This includes holding meetings as part of the Business Liaison Program and convening an annual Small Business Finance Advisory Panel. The information collected helps the Bank to monitor issues relating to the provision of finance for businesses, as well as the broader economic environment.