Competition for business lending tipped to rise

The small business lending market is tipped to improve after two years of tight credit conditions

By Brad Gardner, February 14, 2011]

Small businesses are tipped to get a reprieve from tight credit conditions, with the Reserve Bank saying competition in the lending market is improving.

With the worst of the global financial crisis over, the RBA expects more lenders to enter the market to challenge the domination of the big banks.

They currently control about 70 percent of total business credit, according to the RBA, which says lending by non-bank firms during the financial crisis fell by almost half.

"Competition in the small business lending market eased following the onset of the financial crisis, but there are some early signs that competitive pressures are again beginning to intensify in some segments of the business lending market," it says.

"Foreign-owned banks are also likely to look to expand their presence in the market as global conditions continue to improve."

The RBA made the comments in its submission to a parliamentary inquiry into access for small and medium businesses to finance.

In its submission, the RBA says lending to small business increased slightly during 2009 and 2010, while lending fees rose about 24 percent in 2009.

The RBA says lending by smaller banks is still well below its peak of 2008.

However, it adds that most small businesses are more concerned with cash flow, lack of sales and the economic climate than financing.

During the financial crisis, which is still crippling European states such as Greece and Ireland, the RBA says small businesses reduced capital expenditure and focused on paying back debt.

While tight credit conditions affected some, the RBA says small businesses in most industries still had reasonable access to funds during the financial crisis.

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