COMMENT: One has to seriously question whether the current Federal Government actually understands small medium business and that right now thousands of SMB organisations are starved of cash because of high interest rates and a refusal by banks to loan money to SMB organisations.
During the past week I have spoken to several small medium business owners who are terrified that they are set to lose their business because banks are still charging up to 9% interest on overdrafts to small medium businesses while also refusing to loan them additional money that will help them manage the economic downturn.
One has to seriously question whether the current Federal Government actually understands small medium business and that right now thousands of SMB organisations are starved of cash because of high interest rates and a refusal by banks to loan money to SMB organisations.
Do they actually realise that the mainstream Banks in Australia are still charging up to 8 or 9% interest on business overdrafts to SMB organisations of which there are more than 2 million small businesses in Australia employing approximately 4.5 million people.
And if those businesses start falling over it will create a much bigger problem than whatever the decline in the automotive or construction industries will have on the economy.
Small business in Australia has a total capitalised worth of $4.3 trillion 4 times that of the Australian stock exchange. Small business is a very important sector of the Australian economy.
In the consumer electronics and IT industry the biggest suppliers are small medium businesses that distribute technology products into retailers who are responsible for 11% of all employment in Australia.
The reserve bank has set the prime interest rate at 3.5% so in essence banks are pocketing between 4.5% and 5.5% on the money they lend to SMB organisations.
They are also raking in billions from the 12 to 18% interest rate they charge on credit cards.
But what is the Federal Government and Prime Minister Kevin Rudd and Tresurer Wayne Swann doing for SMB organisations. We know that they are concerned about the automotive industry which is primarily made up of foreign Companies who take their money out of Australia and we know that he is concerned about the mining industry who also exports their profits.
But what about SMB organisations that keep the bulk of their profits in Australia and are the engine room for the economy.
Surely there are grounds to hold an inquiry into the high cost of money for the SMB industry and surely the industry is worth supporting not by pouring in money to prop up organisations but by creating a fair and level playing field.
Why should the Government pour money into construction and automotive companies like James Hardie and Brookfield Multiplex, who are going to take their profits out of Australia after being propped up by Kevin Rudd?
And what’s to stop the Australian Government tipping $10B into a fund strictly for SMB borrowing where the interest rate is 1.5% above prime. The answer is nothing.
Late last week the governor of the Reserve Bank, Glenn Stevens, said at a Senate hearing that bank chiefs should not let overzealous loan officers choke credit to small businesses and increase the risk of recession.
Mr Stevens told the Senate hearing that he Reserve was ready to lower interest rates further if it was needed however there is every chance that SMB organisations will not see lower interest rates due to banks interest gouging. So while home loan mortgage rates fall to 5.2% and lower the chances are that SMB organisations will over coming months start laying employees off and then there will be a bigger issue as to where the money is going to come from to pay the low mortgage payments.