“Market failure”: Government considers policy to improve small business funding
Thursday, October 25, 2018/
The federal government is considering ways to improve small business funding as momentum builds for a new mechanism to help high-potential SMEs access capital.
Responding to a question in Senate estimates on Wednesday, Minister for Small and Family Business Michaelia Cash revealed ongoing “cabinet-level” discussions are occurring about potential policy to help SMEs access capital.
It comes amid concern small businesses are finding it increasingly difficult to secure affordable finance in the wake of the banking royal commission and falling house prices.
SmartCompany understands the government is preparing an announcement for the upcoming mid-year economic and fiscal outlook (MYEFO), which is expected to function as ‘mini-budget’ of sorts in the lead up to the 2019 federal election.
Cash has sought and received advice from the Department of Jobs and Small Business on the issue but declined to elaborate on the specifics of any planned policy at estimates on Wednesday.
Cash’s office did not respond to questions on Thursday morning, but the small business minister has previously hinted the government was considering other small business reforms ahead of next year’s election.
Prime Minister Scott Morrison has sought to position himself “squarely behind” small business in recent weeks, unveiling legislation earlier this month to bring forward a tax cut for businesses with turnover under $50 million.
Australian small business and family enterprise ombudsman Kate Carnell, who also appeared at estimates alongside Cash, says the government has accepted access to finance is an issue for SMEs.
“There’s an acceptance that there’s a problem … there’s a market failure in this space and that’s not likely to change in the near future,” she tells SmartCompany.
Common concerns raised by businesses trying to access affordable finance are that major banks view small business as too high-risk and there often isn’t enough available capital to put up against a substantial loan.
Business owner Aodhan MacCathmhaoil told SmartCompany in September he was forced to pursue equity funding after the banks knocked back his fast-growing waste recycling business.
“We’re cash flow positive, but it was pointed out to us that the banks are just becoming stricter on lending criteria,” he said.
Business Growth Fund
Momentum is building in the private sector for a new mechanism which would provide high-potential SMEs with opportunities to access affordable finance, backed by Carnell.
Inspired by similar programs in the UK and Canada, Carnell says a Business Growth Fund, which would bring together big private sector lenders, would help businesses with lots of potential for growth but poor access to credit.
The proposal, detailed in a June ASBFEO paper, would see a company set up to consider applications for funding, made up of private sector benefactors.
Carnell says the company would be laser-focused on businesses with “high growth potential” or about 10% of Australian small businesses.
“We’re not talking about startups, we’re talking about SMEs that have got traction in the marketplace, and that have potential to grow,” she says.
Carnell says momentum is building among major banks and superannuation funds, who would be the likely participants, in favour of the scheme.
However, banking regulator APRA would need to intervene to create a risk rating for the program given the high-risk nature of small business finance.
APRA has yet to commit to supporting any program but has also not ruled it out.
Carnell says there is a role for government to provide leadership and ensure APRA came to the table.
Other business leaders also appear supportive of new mechanisms to address SME finance.
At a forum in Sydney yesterday Visy Industries executive chairman Anthony Pratt reportedly lamented the difficulties SMEs have accessing finance, calling for the development of non-traditional capital sources.
The Bull reports Pratt said there’s a “real need” for SMEs to maintain their growth in a climate where banks have tightened their belts due to the royal commission.
Pratt is an advocate for superannuation backed funding, having struck a deal with AustralianSuper and IFM investors earlier this year to raise $150 million.