Orr urges banks to step up in aiding small businesses

AUCKLAND: Reserve Bank Governor Adrian Orr has some straightshooting advice for small businesses once Covid19 restrictions are gone: do not be overleveraged, ensure you have access to capital across different debt providers and be prepared to work in partnership to access more capital streams.

Mr Orr told a TransTasman Business Circle online seminar yesterday that the ‘‘highly leveraged’’ nature of small businesses was one of the country’s financial weak points.

‘‘Smaller businesses, in particular, are historically highly leveraged, very dependent on bank debt alone and supported through small business lending off the back of household mortgages.’’

In the future there was a ‘‘real opportunity to spread that base’’.

In relation to government support mechanisms for the wider business sector, Mr Orr said the mortgage deferral for small business had been a ‘‘simple way’’ of enabling cash flow and borrowing for businesses. More was needed from traditional lenders, particularly across the SME sector, which did not qualify under the $250,000 baseline for the business financing guarantee scheme.

‘‘Sitting underneath that there is an enormous number of businesses that just don’t qualify for that activity. This is where banks and financial institutions need to step up.’’

Mr Orr said he wanted to see the banks treating the ‘‘tens of thousands’’ of small business owners with a banking relationship as longterm customers.

‘‘This is the time when banks need to start using their capital more, taking on more risk, being bolder and using their important role for the economy.’’

He accepted that a lot more work was needed in that area for small businesses.

He noted the wage subsidy was useful but, ‘‘when it comes to trying to be an equity partner or debt provider, the vehicles have to be through the current financial system structures’’.

Mr Orr said he also had high confidence that free borders between New Zealand and Australia, or a ‘‘transtasman bubble’’ post Covid19, could be achieved. — BusinessDesk