Small business lending stinks and home loans are cool. That’s the message that we are getting in the press and in practice when we go and ask for a small business loan.
You have to feel for the small business bankers actually (well you don’t but having done the job once I do). They have a master that is telling them that they don’t like property security and to focus on cash flow lending, however they have a credit department who can’t get comfortable in today’s environment with business performance so they only want to lend if there is limited or no probability of loss given default – ie residential property.
On top of this, if they just do the deal as a home loan, invariably the client moves from being a business bank client to a retail bank client and so not only does the bankers lose the client, but the client loses vaguely decent business banking support.
But look at the maths here – business lending rates are between 7.5% and 10%. You can get a home loan for less than 7%. Not only this, a home loan will often be automatically approved, on the spot, where as a business loan will take a minimum of 2 months just to get some sort of wishy washy maybe answer with a list of further info requirements that are longer than your arm, the last one being “can we have a mortgage over your home please”.
Business managers are hence being forced to choose- give the bank your home, chock it up with debt, and you can have a loan now, or leave the home out and wait until you don’t need the money any more to get a conditional approval on you giving you home…… And there goes the Aussie dream of owning your own home……