Stagnant Wages and Banks' Withdrawal from SME Finance - There's a Connection

Average wages in Australia are stuck in a rut. Our politicians talk about GDP but all that matters financially to most of us is whether we are earning a bit more year by year to pay for our higher cost of living, not least sky-rocketing energy prices.

Two-thirds of Australians are employed by Small-Medium Sized Businesses, mainly family-owned businesses. Financing SMEs is a critical issue which is overlooked by economists. They casually assume that finance is always available for profitable new business! However, our mortgage banks can't help with cashflow finance and they dominate Australia's finance market.

Our banks only want to lend against houses. Since 2013, only 11% of business lending has gone to SMEs. Banks can leverage housing loans 40 times but for SME loans its 'only' 10x. So banks pay lip service to SMEs, scooping up their cheap deposits to prop up mortgage lending.

To grow any business, you need capital, particularly working capital in 21st century Australia where services dominate the economy. 

Both Treasury and the Reserve Bank are looking to the services sector and business services in particular to drive Australia’s productivity and growth once new production generated by the resources boom matures.

The two peak economic institutions have a new focus on the economics of firms and sectors as they try to come to grips with the nature of structural change in the economy.
— DAVID UREN, The Australian, September 11, 2017

 

We hope that our economists wake up and realise that finance is part of the problem, especially for our Medium-Sized Businesses, and push Canberra to get serious about fixing it.

No finance, no growth and that includes wages.

In the meantime - and it could be a long wait - ambitious business owners and teams need to look to newer sources of finance ('Fintech' as its called). Be careful of glitzy marketing. Ask your accountant or a trusted advisor. It will take years to fix this problem but the good news is that there are plenty of good sources of growth capital out there.

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Source: RBA, InvoiceX analysis

Source: RBA, InvoiceX analysis

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