Are you finding it harder and harder to get finance?
Published 7:02 am 7 Dec 2018
Credit markets have tightened, lending standards have heightened, and loans are harder to come by. DG Institute Founder and CEO, Dominique Grubisa explains what has happened in credit markets, why it is harder to get a loan, but why there is also going to be more opportunities and what you can do about it.
Having a large community of property investors, I have a real sense for the market. I’ve also got our own finance arm, DGI Finance, where we are involved in lending. In fact, for the big four banks we are one of the top providers of loans in the country just because of the size of our community so when markets and lending standards change and shift, we know about it. And that’s what’s happened right now.
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So, in Australia we’ve got a banking royal commission, so banks under the microscope when it comes to lending. We’ve also got APRA, the Australian Prudential Regulation Authority really clamping down on lending standards in Australia. So they’ve made a lot more compliance around it. They’ve introduced a concept of responsible lending, which means that banks have to do a lot more when they are approving a loan. So it’s a lot harder to get a loan. They’ve raised the bar. Plus, APRA have said the banks can lend a lesser amount now. They’ve really tightened up on investor loans, loans to investors, which means it’s like musical chairs. They’ve taken away some of the chairs and all the investors are fighting over the chairs that are left. So, definitely it is a case of loans and credit being harder to come by.
But, remember that lending is a very, very big industry. So what happens in markets is that there’s billions and billions of dollars in lending and loans out there and money to be made, and if APRA, the Australian Prudential Regulation Authority, says, okay, we are going to tighten up standards, what is happening now is a whole lot of other players are coming into the market. It’s a bit like prohibition.
Remember in the 1920s in America where they said no more alcohol and it just went underground. People went to speakeasies and there was a massive market then – black market for liquor. Same sort of thing here with lending but it’s not a black market, it’s all perfectly legal. In economic terms they call it disruptive change. What that means is what we’ve seen, for example, with the taxi industry, the introduction of Uber leveling the playing field. We’ve also seen it with Airbnb doing the same to the hotel industry.
What we are seeing now is banks losing their foothold, that oligopoly, oligopoly means only a few big players controlling a whole lot of market share. What we are seeing now is, because of the Royal Commission and because of APRA and a lot of other stuff that’s happening, it’s time for disruptive change in the lending field.
People are asking:
1) Why do we need banks anyway?
We’ve got the internet now. So a whole thing has grown up called financial technology, or you might hear them call it fintech, and ASIC, the Australian Securities and Investments Committee, is really big on fintech, or financial technology. What they are saying is, Why can’t Australia blaze a trail? Because there’s a real opportunity here. So they are supportive of financial technology. And a lot of the initiatives in that area are things like crowd funding, marketplace lending, or you may have heard it referred to as peer-to-peer lending. What that means is, instead of banks lending money to individuals, they’ve said, well, why should banks get high interest rates, we’d be prepared to borrow the money from anybody. And other people have said, well, we’d be prepared to lend the money. So getting rid of that middle man, peer-to-peer, as the name suggests, is one individual lending straight to another individual and cutting out the banks.
2) How can they be secure?
Because banks we pictured as legal and there’s big vaults and they hold money, that’s what financial technology is. It is, you may have heard it referred to as blockchain, but it is technology that facilitates one party lending to another securely, and that is what sweeping the world now and Australia is on the front foot with that. We’ve already got peer-to-peer lending sites for property in Australia right now, where people are crowd funding, raising money, or lending directly to each other in the property space, cutting out the need for banks. And that’s what markets do.
If laws change, if the world changes, and money is still needed and credit’s still required, as it is in any economy, then the market will find a way to facilitate that. So peer-to-peer landing is the next big thing and if one door closes, another one opens.
If you can’t get lending the traditional way, don’t worry about it. It’s happening more and more, there will be other ways. There are private lenders. It’s a big wide world of finance out there. You just have to adjust your paradigm. You’re used to going to a bank. Now there’re a whole lot more opportunities.
Lawyer, Asset Protection Specialist and Property Educator
Dominique Grubisa is a practicing legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at email@example.com
This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.