Small business owners report that accessing suitable amounts of finance through traditional lenders remains challenging, with difficult approval processes and substantial collateral requirements.

Drawing on its consultation with the Small Business Advisory Panel, the Reserve Bank reported that, despite increases in rates in recent months, panellists said the cost of finance was not an impediment. The difficulty was getting money on terms that suit them.

“The requirement to provide personal collateral, often residential property, against a business loan continues to be the key constraint on access to finance for SMEs,” the RBA said in an article in the latest Reserve Bank Bulletin.

The RBA said most of the growth in business lending over the past year has been lending to medium sized business, while the rate of lending to small businesses has been little changed for some years.

Another constraint is the onerous approval process, which can be costly and time-consuming for small business owners who do not have access to finance teams.

The RBA said a number of traditional lenders are increasingly automating processes for small business lending and introducing digital lending platforms to simplify the application process and reduce processing times.

“The Consumer Data Right program is expected to facilitate a shift to utilising customer data, as businesses will be able to share financial data with accredited third parties. By opting in to share data, businesses will be able to better compare products and services between organisations and will potentially be able to reduce the time it takes to apply and be approved for a loan.”

The RBA said views on future demand for business finance were mixed. Some banks expected lending growth to remain strong over the rest of the year driven by medium and large businesses.

“Other banks have noted that economic uncertainty, rising input costs and climbing interest rates may contribute to some slowing in demand for debt, particularly for small business.”