Small businesses will have easier access to funding after the government announced a $2billion Australian Business Securitisation Fund.
The move has been welcomed by large and small lenders and labelled a ‘win-win’.
The fund will invest up to $2billion in the securitisation market, providing significant additional funding to smaller banks and non-bank lenders to on-lend to small businesses on more competitive terms.
Small businesses currently find it difficult to obtain finance other than on a secured basis, typically against real estate.
Those that have already obtained this finance then find it difficult to access additional funding in order to grow further. Funding costs are typically higher as well.
The Australian Business Securitisation Fund will be administered by the Australian Office of Financial Management (AOFM), consistent with their prior involvement in the Residential Mortgage Backed Securities Market in 2008.
The government is also in consultation with APRA and a number of financial institutions about the establishment of an Australian Business Growth Fund, which would provide longer term equity funding to small businesses.
Many small businesses find it difficult to attract passive equity investment which enables them to grow without taking on additional debt or giving up control of their business.
Lachlan Heussler, managing director of business lender Spotcap, said, “Mr Frydenberg's proposal meets a real financial need and is a win-win for both Australian small business owners and for the alternative lending industry in Australia.
“Without sustainable lending and affordable finance options, small and medium-sized businesses will struggle to grow, innovate and create more jobs for our economy.
“Australia's 2.2 million small and medium-sized businesses are the beating heart of our economy but are starved of working capital and under-served by traditional lenders who require security.
“By lowering borrowing costs, the proposed fund is a good step in increasing competition between the dominant, big lenders and online, unsecured lenders, such as Spotcap.”
CEO at Scottish Pacific, Peter Langham, welcomed the “unprecedented effort”. He said, “The fund’s clincher is the idea of rated programs.
“It means instead of supporting irresponsible lending by new players and risking taxpayers’ money, the government will be improving the ability of good lenders to help even more business owners.
“This is one of the most measured, thought out and equitable initiatives I have seen from a government to support small business owners.”
The consultation over the development of the Australian Business Growth Fund was welcomed by NAB.
This fund is expected to follow “similar international precedents”, such as the UK’s Business Growth Fund which was established in 2011 and has invested $2.7billion in a range of sectors across the economy.
NAB’s chief customer officer, business and private banking, Anthony Healy, said that “as the country’s largest business bank” they recognised the need for SMEs to have better access to capital in order for Australia to grow.
He added, “One of the ways we have addressed this is by providing unsecured lending through NAB QuickBiz, helping SMEs borrow against the strength and cash flow of their business rather than physical bricks and mortar.
“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.
“We do believe there is more that can be done to provide SMEs with access to equity capital, and we take confidence from the UK Business Growth Fund having operated successfully for several years.
“We look forward to further discussions with the federal government and other participants about the fund’s potential establishment soon.”