You Can Bank On Being Treated Better
Sun Herald
Sunday October 17, 1999
QUICKER response time, more professional appraisal by front-line troops, less intrusive loan supervision, interest rates up to 3 per cent lower, loan terms up to 30 years and flexible security arrangements.
With those sorts of advantages being touted by non-bank lenders to small business, why bother getting a bank loan?
Last year, the banks - still smarting from criticism from the Reserve Bank about their efforts on small business loans - made a concerted effort to lift their game. If they have hurt the aggressive non-bank lenders, it doesn't show.
Michael Coyne of Business Loans Australia said much of his business came from people refinancing their bank loans. Their disenchantment with banks has been fuelled by the realisation that fees and charges - often not fully explained at the time - have bumped up the costs to unacceptable levels.
"We have the same amount of due diligence as banks but our front-line troops are more skilled," he said. "We have smaller teams whereas banks have devolved to the point where it's a `tick box' syndrome. They've become more centralised and removed that face-to-face relationship, so they have to have tighter controls on lending. Many borrowers find that remoteness hard to fathom."
Mr Coyne also believes that, compared with non-bank lenders, banks over-capitalise collateral.
For instance, if a borrower has a home, an investment property and a business, the banks will take security over the home and investment property which could be worth far more than the loan required.
"The banks aggregate assets and that allows them to tie up a client completely," Mr Coyne said.
"We break the assets apart and treat them individually.
"When we show potential clients the repayment figures, it's like lifting a veil from their eyes."
But many people have "unrealistic expectations of interest rates when they go to banks in the first place. They don't understand that banks offer honeymoon rates and they expect to be on those rates forever."
Mr Coyne said that his company "rewards" clients for having good assets and good incomes by offering more attractive interest rates. While initially quoting a mid-range of 6.65 per cent, "we will then offer a rate commensurate with the quality of their assets".
Graham Marshall of Westpac defends his bank's approach to small business lending, saying that "we offer total financial packages rather than just loans". We have a Business Solutions package and a Business Options overdraft," Mr Marshall said.
He said that most of the loans were secured by borrowers' homes, since that was usually their major asset, "but we do lend on an unsecured basis, depending on the client and the business".
He said that although Westpac lent to a diverse range of businesses, there had been "somewhat of a trend towards franchises. They have the advantage of being more clearly understood".
Research by a lender specialising in small business loans, Financial Directions Australia, found many borrowers resented the way bank loan officers dictate how they should run their finances and then subject them to annual financial reviews, which can result in loan restructuring and yet more fees.
Managing director Peter White said: "We would charge 6.29 per cent for a normal residential- secured loan for a small business, while banks go for a high 6 to 10 per cent, the reason being the banks' structure - they build in risk margins of 2 to 3 per cent.
"A lot of people don't like to use their homes as collateral for the loan but prefer it to be the shop, commercial property or an investment home.
"But those who do (use their home) have become more realistic about what they're worth, although there's some umming and aahing in the eastern suburbs."
Mr White said he had noticed a move towards franchising, although Financial Directions "runs the full spectrum from butcher shops to accountancy firms to legal people.
"With franchises, from the lender's point of view, it's not such a punt because there's a track record by virtue of the franchise company's history and there's business support - that gives us an element of security."
Mr White said although small business "was not in the same league as home mortgage lending, it feels to me like the beginning of Wizard (where he was once chief executive) and the banks were dismissive".
"I am now making bigger increases in volumes than I could have predicted," he said.
BUSINESS LOAN RATES
Rate% Rate after
Minimum
fees %
loan
ANZ 7.25 8.36
$50,000
Commonwealth 6.55 7.78
$50,000
NAB 6.95 8.40
$20,000
Westpac 6.95 7.95
$20,000
BankWest 6.85 8.14
$20,000
Citibank 6.65 7.08
$75,000
Colonial State 6.30 7.46
$5,000
Financial Directions 6.29 6.40
$50,000
Suncorp Metway 6.95 7.60 $1,000
Note: Loans secured by residential property. Cheapest available rate.
Source: CANNEX
© 1999 Sun Herald
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