In the heat of the pandemic’s lightning spread, people were told to stay home and businesses both large and small shut down. Planes were no longer flying overhead, baristas stopped pouring coffee, and normally bustling streets were empty.
While everyone around the globe ground to a halt, financial markets went ballistic, treasurers of companies were quickly drawing on credit lines, banks and other lenders looked shaky. Central bankers and top bureaucrats were forced into action. Part of the stimulus and support measures have included negative or zero interest rates, significant bond buying, and various versions of unemployment benefits or JobKeeper type schemes to the tune of ~$8 trillion. While this is totally incredible, the sad fact remains that most of the money thrown out has rapidly flowed into the hands of Wall Street and big business.
With direct fiscal stimulus in Australia and New Zealand changing this month, and the US still to vote on $2.4 trillion of extension measures, there’s looming uncertainty for smaller businesses.
The unfair advantage
Small business consistently miss having a seat at the table despite employing around 44% of Australians[1] and 29% of New Zealanders[2]. A great example of this is how shopping centres negotiate leases with big players like Woolworths compared to the beautician. Or how Solomon Lew’s Premier Investments is now threatening the landlords of 350 of his stores to charge lower rent. Will the butcher get the same deal?
US Federal Reserve Chair Jay Powell recently was grilled by the House Financial Services Committee and he wasn’t interested in lowering the minimum size of the loans under the Main Street Lending Program to $100,000 from the current $250,000. Powell said there was little demand for loans below $1m. Really? Wouldn’t you ask if it is that a function of the process, the form, or clever accountants?
Credit where it is due
Access to credit in Australia was getting tighter and tighter post the Royal Commission. Small business has had a tough time getting access to credit, without the business owner having to use their house as collateral. This is where innovation has kicked in, with peer to peer lenders and the like taking ground from the banks. Treasurer Josh Frydenberg has recently announced changes to “increase the flow of credit to households and businesses”. Will this benefit smaller businesses to restructure debts under less onerous conditions, or will it create a bigger problem down the track? Only time will tell.
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Photo credit: Vie Studio on Pexels
[1] https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1920/SmallBusinessSectorAustralianEconomy
[2] https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-in-force/cptpp/supporting-smes/
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