Lessons to learn in SME lending fund

by Rebecca Pike21 Nov 2018

An SME lender CEO has said a fund to help small businesses gain access to funding could work better in Australia than it did in the UK.

Last week the government announced a $2billion Australian Business Securitisation Fund for smaller banks and non-bank lenders to on-lend to small businesses on more competitive terms.
 
As part of the announcement the government said it was also working towards another fund, the Australian Business Growth Fund.
 
This fund is expected to follow the fund established in the UK in 2011, which has now invested more than $2.7billion in a range of sectors in the economy.
 
The CEO of Australian business lender Fifo Capital, Wayne Morris, was in the UK and part of a Government Advisory directly connected to establishing and deploying the fund which came about after the global financial crisis when banks stopped lending to SMEs. The fund required that any investment into an alternative lender was met on a 50/50 basis, de-risking the tax payers position.
 
He said in addition, to counter the fact the banks weren’t lending and that SMEs were struggling as the banks simply weren’t providing decisions on funding, the government introduced guidelines that outlined the banks must refer clients to independent aggregators, online platforms with panels of lenders, where SMEs where presented with multiple lenders and choice.
 
Morris said it was about providing information to SMEs to let them know there were alternatives to the big banks, as well as increasing the flow of finance and increasing the diversity.
 
While the fund in the UK was an overall success, Morris said there were things to learn about implementing the fund. He said if it was done right in Australia, “there’s no reason it shouldn’t work, if not better”.

Explaining why he thinks the fund will work, he said, “I have seen this work I have been part of it before.

“It’s not about satisfying the lenders that provide funding. From a government’s perspective it’s ensuring the funds make it to the SMEs and make it in the right format that it enables the growth and that was what was done well in the UK.

“So it was incredibly successful because it came at the time where SMEs where struggling to compete on an export side because they couldn’t get the finance to grow.

“It was all about enabling the growth, it meant they could recruit. SMEs are the net provider of employment in the country. Create more jobs, more opportunities. It was a really sound investment.

“As long as it’s deployed correctly, the right partnerships and the right framework, there’s no reason it shouldn’t work if not better, because I think Australia has such a capacity for growth. The UK is a little bit stuck, but here there’s a lot of opportunity to do more exporting and bits like that.”

Morris said it would not be plain sailing however and that there were lessons to learn from the UK implementation.

He said, “This is a step really in the right direction. It comes at just the right time where I think the royal commission has made big banks tidy up their criteria and this is just a nice segway into SMEs getting more flexibility they need in the lending space.

“But it’s critical they get the framework and deployment correct. That’s the concern from a tax payer’s point of view.

“Having $2billion available is great. The devil in the detail is how you’re going to deploy that. That to me is the critical piece to play, but on the face of it is in incredible piece to play.

“There needs to be a very close run on the finance partners they work with. The critical thing here is that the government needs to put those funds out at an affordable rate that isn’t then abused by the financier.

“For instance, if they were putting the amount out at 4% the financier shouldn’t be putting it out at 30%. They also need to ensure the finance partners have robust and credit risk procedures because we’re talking tax payer money.

“Credit risk and how those funds are deployed, you can’t afford to lose $2billion of tax payer’s money. Apart from the framework, the ongoing measuring, time and reporting piece would be the first things I’d look at.”

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