THERE are fears the major banks will consolidate their hold on the lending market and force non-bank competitors to offer fewer products.
This would put extra pressure on small businesses with cash-flow problems, which might normally think about taking out a loan to cover their shortfalls, the Council of Small Business Organisations of Australia says.
It urges small operations to shed staff, rather than take out loans as competition among lenders dries up.
The extent of the lending drought has been made clear by financial research group Cannex, which showed the number of low-documentation loan products on offer fell by 15 per cent in the first seven months of this year.
Last month, 38 lenders were in the low-doc business, down from 46 in January, with 153 products on offer, the data shows.
Cannex says low-doc loans are often taken up by self-employed people who earn an adequate annual income, but on a more volatile basis.
"People are finding it risky to lend . . . based on what is happening on the capital market,'' Cannex financial analyst Joshua Zenas says.
This year, HSBC, Macquarie Group and Virgin Money have dropped out of the low-doc loan market, as have non-bank lenders Bluestone and Ironbark Mortgage Solutions.
Council chief executive Tony Steven says small companies are better off cutting costs than getting into more debt to cover their cash-flow problems.
"My advice to small business is to be very careful and wary of loans to cover cash flow in a downturn in the economy,'' Mr Steven says.
"In the economic cycle, efficiency gains have to be instituted - whether that means cutting staff or finding cheaper, quicker processes."
Consumer group Choice spokesman Christopher Zinn says the major banks are more likely to increase their market share as higher global borrowing costs make non-bank lenders withdraw from the market.
"Our fear is that without competition from the non-bank sector, it does allow the banks far more freedom to further their interests," Mr Zinn says.
"The rise of the non-bank industry led to a lot of price and terms of conditions competition and new products, which was terrific for the consumer."
Source:http://www.news.com.au/business/story/0,27753,24248982-5017672,00.html