On The Final Frontier, Micro Targets Open Fire On Banks

The Age

Friday August 19, 2005

PHILIP HOPKINS

MICRO-BUSINESSES in Australia don't like banks much and are playing very hard to get, according to a new report.

The report says micro-businesses are underbanked, don't aggressively buy bank products and display "suspicious and openly jaundiced views of their banking relationships".

The report, by consultants East & Partners on behalf of bank clients, focuses on micro-businesses with a turnover of $1-$5 million. More than 2400 micro-businesses - enterprises with fewer than five people - were interviewed in June. This is 1.2 per cent of the nation's 195,620 micro-businesses.

Craig Stevenson, manager of printing company Best Impression, said the issue for small business was that banks would usually lend only against assets.

"You have to have personal assets to support your borrowings to a level of 80 per cent," he said. "I and many others simply go outside that to the financiers, who'll give you 100 per cent of your needs, based on cash flow as opposed to asset backing."

His company no longer financed anything through a bank, he said. "It's cheaper elsewhere. It's much easier, and they actually care about your business."

Luke Silk, immediate past president of the Australian Asset Finance Association and director of Melbourne Finance Broking, said his business had doubled in the past two years because people were fed up with banks. "They hate all the bureaucracy, the call centres, the automated telephone reception and so on."

He said banks thought that if something went wrong with a loan to a small business, they had to write a whole lot more loans to cover that one loss.

"It's cheaper and easier for banks to let us take that business - they are, in effect, outsourcing the management of SME (small and medium enterprise) loans.

"SMEs love it that we care about their businesses, listen to them and take their circumstances into account."

The East & Partners report, second in a six-monthly series, notes that micro-businesses are the "final frontier for banks" - the largest segment in terms of enterprise numbers in the Australian business banking market.

So far the banks have made few inroads. Of 27 products in their micro-business programs, only seven are used by most customers, and 17 are used by fewer than one in 10. The customers rate 11 of them below average.

Most products are confined to core transactions - debt and deposits - and use of foreign exchange. The average micro customer, like his SME peer, is not using enough bank products and making little use of financial and risk management offerings.

Micro-business has lowered its use of only one product - foreign exchange loans - in the past six months, suggesting the desire to use banks is rising.

The most important products for micro-business are the same as six months before: internet banking, cash management, overdrafts and term cash deposits. The only newcomer is Australian currency term loans.

The services they want most are understanding of micro-business issues, loyalty to the customer and value for money.

TAXATION

Crackdown on small to medium money movers

The Tax Office will pay more attention over the next year to small, medium and even micro-businesses that try to shift profits offshore, according to the latest ATO compliance program. Thisis released annually to provide guidance on where the ATO will look to stop leaks in tax revenue.

Deloitte's Melbourne partner in charge of transfer pricing, Paul Riley, said the ATO looked seriously at the SME segment (businesses with annual turnover between $2 million and $100 million) for the first time last year to uncover inappropriate transfer arrangements.

Mr Riley said globalisation meant that many more SMEs were routinely trading with overseas partners and investing offshore. "This creates opportunities to shift profit offshore and evade paying the correct amount of Australian tax," he said.

"The ATO has clearly been encouraged by its success in the past year and is moving into the SME market in a big way. This is evidenced by the 25 audits expected in the SME segment by June 2006."

OPEN DAY

Go west for an inside line on manufacturing

PRIVATE companies can get to inspect two leading manufacturing businesses in Melbourne's western region over the next two months. There will be a tour of Huntsman Chemical Company's plant at West Footscray on October 5.

Huntsman is Australia's only manufacturer of styrene and employs more than 300 people at its West Footscray site. Continuous improvement, occupational health and safety and human resources are the key focuses of this tour. The cost is $55.

Innovation Insights has organised a tour of Orica's chlor-alkali plant at Laverton North on September 8. The plant uses state-of-the-art technology to manufacture chlorine, caustic soda, hydrochloric acid and sodium hypochlorite. The visit will focus on lean manufacturing and occupational health and safety. The cost of the tour is also $55.

To obtain a brochure, email barbaramclure@ozemail.com.au. Further information on Innovation Insights can be obtained from insights@invetech.com.au.

PLANNING

NAB cover for debt repayment strategy

THE owners and managers of too many small and medium enterprises have no plan as to how to pay out their debts if something happens to them, says National Australia Bank. "Every business person should have a strategy to clear their debts, especially how they will repay their home loan, if they become ill or get caught in an accident," said executive general manager of business and private banking at NAB, George Frazis.

Mr Frazis said NAB's National LoanCover paid out a home loan in the event of death, or covered monthly personal loan repayments in the event of disablement, or involuntary unemployment of the person who took out the loan. The cover also offered ease of payment, being able to be funded from the loan account or deducted from personal NAB savings or transaction accounts.

It also paid involuntary unemployment benefits of up to $5000 a month (for a maximum of four months) and covers loans up to $400,000, depending on age.

© 2005 The Age

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