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Finance squeeze strangles pharmacies

By ASHLEY LEAL
AUSTRALIAN pharmacy owners are facing financial difficulties as a result of changes to lending policies by Australian banks.

One pharmacy owner in Victoria received a letter from their bank advising them that their business overdraft facility fee had more than doubled.

This is one of the case studies used by the Pharmacy Guild of Australia in its submission to the senate inquiry into access of small business to finance.

The Australian Bankers Association is introducing a higher risk margin and higher interest rates on small business lending as part of a risk-based pricing system, according to a media release last month (April 2010).

The ABA argues that this system is important for the health of the Australian economy.

Greg Turnbull, director of communications at the Pharmacy Guild of Australia, says, “It’ll slowly strangle small business growth and prosperity because finance keeps small business going and small business keeps the economy going.”

The ABA wants long transition periods to adjust to the final structure of the regime for the Australian financial market.

But Mr Turnbull says many of the Guild’s members who have been running good business suddenly have to meet higher requirements.

“It’s as though the whip has been cracked up above the banks by the people they get financed from internationally…so everything has to be completely watertight,” he said.

A number of case studies in the Pharmacy Guild’s submission have highlighted a lack of competition in the small business lending market.

Before the global financial crisis, the submission says the Guild was dealing with 13 banks and financial institutions with a pharmacy lending policy, but now there is only one primary lender throughout Australia.

But the ABA states in a media release that this is to be expected in the wake of the global financial crisis.

Mr Turnbull also emphasised the banks’ changes to lending policy have constrained the ability of new younger pharmacists to buy into pharmacies as new equity partners.

Associate professor of economics at the University of Canberra, Cameron Gordon, believes a good approach by the government would be to give inducements to banks and non-bank lenders.

“You just have to make sure that those incentives are passed through to the borrower,” he said yesterday (29 April 2010).

Professor Gordon believes the situation after the global financial crisis is not as bad as it was, but “we’re still not in a completely normal credit market”.

The Pharmacy Guild’s submission to the Senate inquiry says margins applied to business lending now range from 2 to 3.5 percent, compared to 1.5 percent before the global financial crisis.

Professor Gordon says this doesn’t seem unreasonable in the current situation.

“Given that we had a big crisis in the credit market and we’re still not completely normalised, that doesn’t sound out of the bound of reason for me,” he said.

The Pharmacy Guild of Australia is hoping the Government will work with the banks and small businesses to reach a solution to the problems.

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