Why SME bank loans are delayed: SME loan explainer

It’s back to business, but Australia’s banks are taking on average three to six months to approve bank loans.

Basically if you’re not a perfect candidate for a loan, it is going to be a stretch for your business to get access to finance through a bank in a reasonable time frame this year. I am a former banker, and in normal times, we would expect a loan for an SME to be approved within weeks, or for more complex deals perhaps up to three months.

If you have a good existing relationship with your bank, you may get approval faster, but anyone else it is taking up to six months. Three months is the new normal. In business terms this is a long time, especially for cash poor SMEs. If you need a loan to make payroll, a six month wait isn’t going to be an option.

Why is this happening?

This delay in loan approvals has largely come because of an increase in compliance. Post Royal Commission and after the pandemic year of 2020, banks are increasingly dotting every single i and crossing every t and have lost sight of the need to lend to businesses. The major issue for businesses is that each bank has a different set of expectations to navigate.

Some banks won’t recognise commissions as a part of income when approving a home loan. Others won’t recognise cryptocurrency as an asset, or even deal with people who work in this emerging space.

The exception for perfect deal

If you’re the perfect deal for a bank, you’ll still get access to finance a lot faster than others. You won’t be able to change your business circumstances but here’s a high level snapshot of the attributes banks are looking for:

• Good business thing here
• Clear financial model
• Understanding of business

What else can you do?

We mentioned financial model in our list above. This is our bread and butter. It is also what our clients come to us for so they can prepare for the worst, plan for the future and set their business up to be well placed when it comes to financing.

To being setting yourself up better you need to go back to business fundamentals:

• Prepare for finance early
• Understand cash flows
• Understand your business
• Navigate seasonality
• Plan for your business

Going to a 2^nd or 3^rd tier lender

So if the bank is off the table, what’s next? Most businesses in tight cash flow situations or those who want to look beyond banks will often go to 2^nd or 3^rd lenders.

However, the rates for these lenders can vary significantly. We have seen interest rates of more than 30%.