November 29, 2018 Pat Mannix

Risk Averse Banks Taking A Toll On Small Business

Pat Mannix

Pat Mannix

Partner
Pat Mannix champions small business people. Owning and running his own financial services firm for over 20 years, Pat is an expert in small business tax, property investors and high net worth families via trust structures and SMSF's.

You’re probably somewhat aware of how powerful the banks are.

But do you really know the full story?

I’d like to explain how they control a lot of stuff that’s going on in the economy.

The benefit of the banks – on a macro level

Let’s go back to 2007 and 2008. In the United States, the Global Financial Crisis occurred.

Loans were being given out by all sorts of banks and financial institutions in the U.S. to people who really couldn’t afford them. It was rife. It messed up the whole of the banking system and property prices in the U.S. dropped considerably. They’re only just starting to recover over the last 18 months in America. A full decade later.

How’d the Aussies get through it? The banks.

Many years ago, the government set up Australian Prudential and Regulation Authority (APRA). It was a stroke of genius by the government because it locked in certain conditions that the Australian banks had to operate under.

In particular, the big four banks were a lot more restricted in their lending practices than what the bigger banks in the U.S. were. Hence, our property market did not implode like in the U.S. and we made it through.

At a macro level, APRA and the big four banks in Australia are absolutely fantastic. They’ve kept this country floating above water.

The downfall of the banks – on a micro level

Those of us in small business land tend not to think of the banks so highly.

In 1997, the Asian Currency Crisis occurred and a number of Asian currencies fell straight through the floor. During that time again, the property prices held pretty well through that period in Australia.

However, when the Asian crisis hit, the banks turned into absolute poindexters. They called many small businesses and put mounds of pressure on them. They threatened that if their small business messed up and started going downhill, they would not be there to help. They would just drag the rug out from under them.

I had a great client during the period of the Asian Currency Crisis in the late 90’s. He had a fair bit of capital equipment on finance and he had some other bank overdraft lending as well. Business was going beautifully. When the Asian Currency Crisis hit, the big bank called him in and hammered him. They wanted figures from him every single month and intended on keeping an unnervingly close eye on him.

The banking industry is so strong and risk averse, that they will crack onto small businesses and pull the rug out from under them.

How is this taking affect right now?

It’s looking like the ALP might get in federally. They have threatened some restrictions in taxation laws. The banks are scared. They’re not taking any risks.

They are looking at their small business clients and keeping an eye on them. They’re demanding all their information. They’re hammering them constantly for figures and proof that they’re not going to go under. They want to put pressure on them now, because if the laws do change, they will be under the pump.

One of my small business clients had it happen to him in the past week.

The bank called and pressured.

“We want the figures in, what’s the situation with all of your lending?”

My client simply said: “Calm the farm”.

But the bank has every intention of making the ‘farm uncalm’. They are demanding a look into the businesses finances and the operations of the business. They’re causing chaos where calmness is needed.

This will continue as we lead up to the election because the big banks know where the potential risks are.

Beware of the rug being pulled

Essentially, the banks at the macro level in Australia are absolutely fantastic. They keep things on track for the country.

However, if you’re at the small business level and present any sort of a risk to them, they don’t care about you. They will pull that rug from underneath you if things get risky.

Right at the moment, in November 2018, it’s a little shaky. Property markets have corrected a little bit. There could be a change of government and tax laws might be shaken up.

If you’re getting hammered from your bank, this is why. They see small business as a risk.

Pat Mannix

Pat Mannix

Partner
Pat Mannix champions small business people. Owning and running his own financial services firm for over 20 years, Pat is an expert in small business tax, property investors and high net worth families via trust structures and SMSF's.

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