Restricting interest-only loans could hurt small business

The prudential regulator’s restrictions on the amount of interest-only loans that can be written by lenders could end up hurting small business, according to the Finance Brokers Association of Australia (FBAA).

The warning follows the release of data showing that the volume of IO loans sold by brokers, and lenders, has fallen sharply in the past year.

“It is important to remember when we discuss this subject that the vast majority of small businesses will borrow against their family home at some stage in their business life, and they need to be able to access the right style of debt for their business, which could well be IO,” said FBAA executive director Peter White.

“These restrictions may result in small business borrowers not being able to access the right style of debt, which could restrict their ability to expand, or even to continue to operate.

“This could have a major impact on small business in Australia.”

Australian Financial Group, the country’s biggest broker network, has released its latest mortgage index that shows a decline in interest-only loans.

Just 19 per cent of home loans written in the second quarter of this financial year were IO loans.

The Australian Prudential Regulation Authority’s (APRA) new rules restrict interest-only lending to 30 per cent of new business.

“It’s tough enough for small business borrowers now in the lending arena without putting additional restrictions on them,” continued Mr White.

“Our country is incredibly reliant on the successes of small business and we need regulations that help them succeed, not restrictions that help them fail.

“Small business lending should be dropped from these restrictions by APRA so that businesses can still access the debt they need as necessary.”