If the Reserve Bank has learned any lessons from the successes and failures of various fiscal and monetary policy measures to support small business during the pandemic, it is not sharing them with the market.
The RBA’s assistant governor for financial markets, Christopher Kent, spoke at an Australian Finance Industry Association webinar yesterday and his speech included a section on how effective policy measures have been at supporting business credit. It was short on useful insight.
Kent said monetary and fiscal policy responses to the pandemic have cushioned the impact of tighter access to credit for small and medium enterprises. SME lending levels were little changed over the past 12 months, as measures supported business cash flow.
He said there have been “pockets” of increased financing activity. Much of the increase was borrowing for the purchase of property, plant and equipment to take advantage of the instant asset tax write-off scheme.
Lending to the agricultural sector increased, as large parts of the industry came out of drought.
Lending to small businesses in industries affected by the pandemic – cafes, restaurants, arts and recreation – was low.
Kent said the policy “cushion” meant that lending conditions have been less volatile than might otherwise have been expected, although access to finance remains difficult for small businesses.
Commenting on specific policy measures, Kent acknowledged that there has been a “gap” in access to the RBA’s term funding facility.
However, access picked up before September 30 last year, which was the closing date for the initial allowance, and Kent expects the same will occur as the deadline for the second TFF allowance approaches in June.
He did not comment on the government’s A$40 billion SME Loan Guarantee Scheme, which has been under-utilised, other than to point the scheme has been overhauled in the last week. Eligibility has also been narrowed.
He pointed to some ongoing initiatives that will continue to support small businesses after the temporary measures have ended. These include the $2 billion Australian Business Securitisation Fund and the Australian Business Growth Fund.
The ABSF has had its problems. After being launched in July 2019, it made its first investment in April 2020 and was then put on hold a few months later. It was reactivated early this year but is yet to make any more investments.
Kent had nothing to say about this patchy record.
He said small businesses are increasing their use of non-traditional sources of finance, such as receivables finance, but the most recent available data (for 2018) suggest that these sources of finance accounted for less than 2 per cent of overall SME lending.
When speaking to the RBA, businesses say that non-traditional sources of finances are useful but they tend to be expensive, short-term and usually only for small amount.