Accessing finance still remains a barrier for Australia’s small businesses according to the results of the Affordable Capital for SME Growth report.
The report is a follow-up the Barriers to Investment study which took place in 2017 and identified a funding gap for many of the nation’s small businesses.
According to the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell, one of the unintended consequences of the financial services royal commission for SMEs might be an increase in banking regulation, making it even more difficult for small business owners to access affordable growth capital.
“In Australia, lenders consider SME’s high risk and offer capital with restrictive terms and conditions, at high interest rates and demand bricks and mortar as security – which is usually the family home,” Carnell said.
The ombudsman suggested it is time Australia followed the lead of other nations to support the growth of their SMEs.
“The UK, Canada and the US – jurisdictions similar to Australia – have addressed this market failure, which is worldwide, with successful initiatives that have increased access to affordable growth capital to SMEs
“The Productivity Commission’s draft report into competition in the Australian financial system and the Reserve Bank of Australia have also identified the funding gap for SMEs.”
Whilst Carnell acknowledges the fintech sector was picking up some of the slack by providing short-term loans for the sector, she suggested these loans which often come at a significantly higher interest rate, were a short-term solution.
“I regularly remind people that SMEs are the engine room of the economy, but the engine won’t work without petrol, which is seed capital and growth finance.
“We have made eight recommendations outlining initiatives to increase the supply of capital and inform and prepare SMEs to be finance-ready to address the market failure.
“On the supply side, we recommend establishing a Business Growth Fund based on the British model, to focus on long-term funding solutions for SMEs that have the capability to grow.
“Another is an Australian Government Guarantee Scheme. Under the scheme, member banks can apply for a government guarantee to partially support a loan to SMEs with a strong business case but insufficient real estate or business assets.
“On the demand side, our recommendations include initiatives to help SMEs prepare their business to seek capital and raise their awareness of alternative sources of finance outside traditional banking.”
Read more of the report’s findings here: Affordable Capital for SME Growth.