Many small-to-medium enterprises currently seeking funding are being stonewalled by lenders, with more and more asset classes being categorised as "non-preferred" and lenders also imposing overly stringent approval conditions.
According to Ken Richards, director of national finance broking group Interlease, financiers are continuing to tighten their purse strings when it comes to SME lending, especially in relation to unsecured finance. "Many of the banks insist that there is no general tightening of credit criteria however the reality is very different. Whilst it may be true that the rule book hasn't significantly changed the financiers are now rigorously applying the rules. What could be done a year ago is very different to what the financiers will do today" Mr Richards said. "More and more asset classes are being categorised as non-preferred or tertiary and some banks are stopping lending for those assets or making it almost impossible to satisfy approval conditions." Mr Richards said far more information is required than previously, which whilst not always a bad thing, sometimes it is onerous to the point of discouraging an application. "The banks point to continuing volumes, however, there are a lot less funders in this market and they are being very selective to the detriment of some good businesses who are finding that they are not able to finance their income producing assets." Mr Richards said some banks were using this as an opportunity to push strongly to lend primarily to their customers rather than one-off transactions, usually under the guise of supporting their customers. "However, the big attraction to the banks is often collateral security, such as real estate, and this can unnecessarily tie up security that could be better utilised, which is often not in the customer's best interests." Mr Richards said lending volumes were strong in the first quarter of 2009-10, largely due to 30 June transactions rolling into that quarter. "But the anticipated activity in the second quarter, with the investment allowance ending for small companies, has not materialised and anecdotal information available from all of the banks supports this, potentially leading to a double hit for some manufacturers and agents for capital equipment."
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