Australia’s SMEs Saddled with High Banking Fees

Like in many other developed countries, small and medium businesses in Australia account for some 60 per cent of the total jobs available on the labor market. In other words, they are the catalyst of the country’s economic development and this has to do with more than just employment levels. More often than not, some of the biggest innovators and policy makers in a given field emerge from among the ranks of entrepreneurs and this has also been the case in Australia. However, the SME segment down under has been historically plagued with several issues, among which excessive bureaucracy and fiscal policies. To make matters worse, the global financial recession has caused the country’s banks to face a credit crunch of sorts. With credit demand levels at a historical low, in spite of the repeated cash rate cuts by the Reserve Bank of Australia, banks have turned to their business branches to make up for lost liquidities. As such, SMEs down under now have to deal both with excessive fees, as well as with a strict fiscal policy.

Many have criticized the fees that banks in Australia have for business loans and other banking services. Most recently, a payment service company has blamed the banks down under with applying inordinately big fees to the banking services that small and medium enterprises are offered. There are some 350,000 small businesses in Australia and, according to the CEO of the afore-mentioned company, they are paying the price of the slowdown in personal banking activities. On the flipside, personal clients have been reaping the rewards of relatively low levels of demand: they are getting better deals and paying smaller fees. Meanwhile, though, SMEs are footing a $7.3 billion bill in banking fees, in order to keep the banks at the top of international profitability charts.

The same executive went on to recount other pitfalls of the banking system, with respect to small and medium enterprises. With the retail industry down in the dumps, banks have shown little interest in helping smaller companies regain their economic momentum. Statistics show that during the first quarter of the year, no fewer than 44 per cent of all applications for business loans have been turned down by banks.

Of all the businesses that have to deal with high fees, most of them are choosing the hard way out – they are internalizing these costs, in order to stay competitive and not pass them onto an already burdened and mistrustful consumer. This is the case with some 200,000 companies, i.e. 65 per cent of them. In order to efficiently internalize banking fees, some companies have resorted to creative office solutions. Regus virtual offices, for instance, eliminate the need for a physical headquarters, which many startups have no actual need for, especially if they are active in the digital or IT fields. This takes care of overhead issues, but does not entirely solve the problem. Credit and debit card fees for companies have jumped up from 3.2 per cent in 2011 to a worrying 8.2 per cent in 2012. The cited CEO says his company alone was responsible for $4 billion worth of credit and debit card transactions over the past year. In spite of this impressive figure, they are still getting the shorter end of the stick.

SMEs do benefit from some relief from taxation. Those that have invested into new equipment worth less than $6,500 over the course of a year can benefit from a tax deduction, which they need to apply for before the end of the financial year. More expensive purchases warrant a 15 per cent rebate during the first year of usage and 30 per cent for each ensuing year. It may look like a small blessing, but, given the current climate, it’s still better than no relief at all.

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