The Morrison government has thrown its support behind the nation’s small businesses with the announcement of a major new fund using Commonwealth bonds to back small business.
The scheme, the Australian Business Securitisation Fund, was announced by treasurer Josh Frydenberg today and is set to be brought before Parliament.
It will establish a fund to invest in providing loans to small business via non-bank and small bank lenders.
Frydenberg said he hopes by disrupting the existing lending market, small business will get the support they need.
The move follows strong criticism from the small business sector and Australian authorities such as the Reserve Bank and Australian Small Business and Family Enterprise Ombudsman, that small business owners are currently disadvantaged in the lending market – often forced to put up their homes for collateral or resort to credit cards for daily spending.
The securitised loans will include both secured and unsecured lending to small businesses and will be backed by Commonwealth bonds. The loans will not be provided by the government, but rather supplied through fintech companies and small bank lenders.
It is anticipated the scheme would run for five to 10 years with a planned review in two years to decide if more funds should be injected.
The scheme is similar to the model set up by Labor during the global financial crisis to fund home loans.
The government is also seeking support for a second initiative, the Australian Business Growth Fund. It is proposed this fund will raise finance through private equity and will invest in small businesses and companies rather than provide loans.
The scheme is similar to the UK initiative, the Business Growth Fund which was set up by many of the UK’s leading financial institutions including Barclays and Lloyds.
NAB Chief Customer Officer, Business and Private Banking, Anthony Healy, suggested the set up of a growth fund was a positive move for the small business sector.
“We have a long and proud history supporting SMEs, and as the country’s largest business bank we recognise that for Australia to continue to grow, SME businesses need better and easier access to capital.
“The Australian Business Growth Fund can help this further by providing a way in which SMEs can receive long term equity capital investments to grow their business, invest in new technology and create more jobs, which is why NAB is supportive of the concept,” Healy said.
The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell said she welcomes the announcement by the treasurer to introduce an Australian Business Securitisation Fund and facilitate further discussion on the development of an Australian Business Growth Fund.
“Both initiatives reflect recommendations from our Affordable Capital for SME Growth inquiry earlier this year – “recommendation 1: a Business Growth Fund and recommendation 4: a Capital Enhancement Fund,” Carnell said.
“The Australian Business Securitisation Fund will go a long way in meeting the financial needs of the Australian small business sector by stimulating greater competition in the lending market.
“Our 2017 report into barriers to investment identified a funding gap where small to medium enterprises (SMEs) did not have access to the finance they need to start or grow their businesses,” Carnell advised.
Carnel said more recent research has revealed the funding gap is estimated to be in excess of $80 billion.
“The new pool of capital will help address this gap, as smaller banks and non-bank lenders will have access to more capital specifically for the sector.
“This will increase competition in the market and increase access to affordable capital for SMEs.”
Tom Reed, CEO of business software provider MYOB, describes the government’s move as a positive step for small business.
“Our research has found cash flow to be a major pressure point for SMEs, with 30 per cent reporting this a top concern.
“Providing non-bank lending through innovative fintech companies opens up a whole new ecosystem of financial services. MYOB already provides small business loans through our online accounting software platforms and we look forward to continuing to work with the Treasurer and Minister for Small and Family Business to bring new services to market that will benefit the nation’s small businesses,” Reed said.
“Ensuring business owners have access to the capital they need to invest will help grow and strengthen the whole economy. It’s a great move.”