Small is Large for Big Four Banks

SMALL business is a key industry sector for the big four banks and business owners can use this to their advantage.

The latest Reserve Bank of Australia data shows that, for the year to March 2013, new lending commitments for small businesses totalled $72 billion – just off the record $80 billion of 2010 and 2011.

About 27 per cent of all business lending by Australian banks is for small businesses, according to the RBA. Australian Bankers’ Association chief executive Steven Munchenberg says this shows small business is a “critical” sector for the banks.

“Small business also employs about five million people and those people will also be banking customers,” he says.

“So the banks do well when small business does well.”

Munchenberg says small business can make the most of this by being prepared to find the best deals, a task made easier by the availability of online comparison sites.

“That knowledge gives you a lot more power when you are discussing things with your own bank,” he says.

“The other key thing at the moment is that demand for credit from households and business across the board is very subdued.

“We have a situation where banks have got plenty of money to lend but few customers seeking to borrow – so the banks have to fight more for a smaller pile of customers.

“As a result of this, those seeking credit are in a very strong position.”

Munchenberg says the best thing a small business can do for itself to ensure the best banking deals it to make sure it is well prepared before approaching the bank.

“Banks are going to be looking at financials, cash flow expectations, orders and those sorts of things, so you have to make sure all of that is in order.

“It puts you in a stronger position as a customer.”

Naked Business Consulting managing director John Varvarigos says small businesses need to develop greater relationships with the banks in order to get the best deals.

“Building a relationship with banks is critical,” he says.

“Bankers are actually there to try and help them to some degree and banks these days are working a whole lot harder to be almost quasi-advisers to small business.

“It would be smart for small business to leverage that as much as they possibly can.”

Varvarigos says developing and communicating a strategic business plan is the key factor for any small business after a better deal from their bank, but for many this can be “the weakest link in the business”.

“Typically what we see is the vast majority of companies don’t have an up-to-date strategic business plan that can be communicated easily to the banks,” he says.

“It’s a tool that can be proactively used. If you turn up at the bank and can’t explain what you’re doing, how are you going to talk to them?”

Jeremy Levitt, a member of the Entrepreneurs’ Organization and co-founder and chief executive of serviceseeking.com.au, says business owners should check what the other banks are offering annually to ensure they are getting the best deal. Levitt, whose company allows consumers to compare quotes and prices for a variety of businesses nationally, says National Australia Bank has always supported them.

“In terms of fees, as we’ve gotten bigger a lot of other banks have tried to woo us and NAB have reduced our fees over the years to keep our business,” he says.

“That has been really important over the years.”