Young people in Australia are stuck between a rock and a hard place when it comes to building wealth and security.
If you’ve missed the gist, young people find it hard to get into the housing market.
This isn’t because of a new-found taste for smashed avocado, but because housing is really, really expensive.
According to data compiled by the University of Melbourne [PDF], the proportion of people aged 18 to 39 who own a home went from 35.7 percent in 2002 to 25.2 percent in 2014.
Not only is the housing market proving all but impossible to get into, but they’re finding it tougher to get finance for their own business.
According to a finder.com.au study (cited here by SmartCompany), one in five average businesses has been rejected for a business loan in the last two years, but that number jumps to 43 percent for Gen Y.
One of the chief reasons they can’t get a loan? They lack brick-and-mortar security.
Rock, meet hard place
The Australian Small Business and Family Enterprise Ombudsman recently prepared a report for state and federal treasurers on the availability of funding to small businesses.
The key takeaway from that report was that a lack of bricks-and-mortar assets meant that banks were unlikely to lend to businesses.
“Banks are happy to lend to small businesses, but only if they have security such as property or cash,” said the Ombudsman, Kate Carnell.
If you don’t have a house or commercial property, you’re far less likely to secure a loan, which is painfully delicious irony for a generation of people struggling to create wealth.
“The requirement for property security limits capital availability for small businesses with good cash flow and good prospects,” said Carnell.
“Funding for many small businesses is unavailable at a reasonable cost.”
It’s why non-traditional lenders are now looking rosier to businesses who want funding but don’t have the real-world assets to back it up.
The fintech angle
We’ve written about this in the past, but the enormous growth in fintech solutions geared towards SMEs is partially down to the different lending requirements they have.
MYOB Loans Powered by Ondeck*, for example, uses cash-flow data as one of the prime data points to decide whether the applicant gets a loan or not.
These sorts of loans are made to give existing businesses the next spur in their growth (a shop fitout, for example), but the principle still applies.
They also only typically cover loans up to a certain amount ($150,000 in the case of MYOB Loans).
For businesses starting their journey or businesses requiring more capital, their only option is a bank.
“For small business, amounts beyond that level require existing wealth generally in terms of real property holdings (and it is beyond this level that is needed for real business expansion and market penetration),” the Ombudsman’s report reads.
“For businesses with good cash flow and business prospects but lacking real property holdings that may be mortgaged, funding is simply unavailable.”
The Ombudsman has suggested a scheme similar to the British Business Bank.
Until either this is established or the property market cools to a point where property ownership isn’t a pipe-dream, the ability for younger people to gain financing will remain tough.
“Without a creative approach to small business lending in Australia we risk stifling growth, investment and employment,” said Carnell.
*Loans are issued by On Deck Capital Australia Pty Ltd ABN 28 603 753 215. Loans subject to lender approval.
MYOB holds a 30 percent stake in OnDeck Australia and has a referral agreement under which it earns a commission on loans referred to OnDeck Australia.