UK growth fund shows the way forward for the federal government’s SME finance plans
Thursday, November 29, 2018/
The SME sector in Australia has been desperately calling for more funding options and support for years. The federal government’s recent announcement of the introduction of a $2 billion securitisation fund and the proposed establishment of a small business growth fund could be the answer to its prayers.
The Australian Business Securitisation Fund will make $2 billion available to “providing significant additional funding to smaller banks and non-bank lenders to on-lend to small businesses on more competitive terms”.
It means — hopefully — SMEs will soon have funding options beyond the major banks. It also means the non-bank lending sector could see relationships develop that grow both lending businesses and lendee businesses.
In the media release announcing the new policy, Treasurer Josh Frydenberg said the growth fund could be modelled on overseas models already in operation.
“The Australian Business Growth Fund is expected to follow similar international precedents. By way of example, since its establishment in 2011, the United Kingdom’s Business Growth Fund has invested some $2.7 billion in a range of sectors across the economy,” he said.
Modelling the new fund on the UK version looks like a good bet too, judging by its track record. Established in 2011, the fund touts itself as the UK’s “most active investor in growing businesses”.
According to an article in Forbes, so far in 2018 the UK fund “has invested on average in a business every single week, plowing over half of a £2.5 billion ($4.34 billion) war chest into 220 UK companies in the last eight years”.
Canada has already followed the British model, establishing its own fund earlier this year.
The policy is a welcome two-pronged approach to the historical problem SMEs have faced in accessing bank financing and growth funding. Many small business owners have their own stories about the difficulties of raising the capital required to start, maintain and grow their business, especially for those business owners not fortunate enough to be able to borrow on a secured basis against property or other substantial assets.
Another problem for SMEs is the cost of credit is high when compared to big businesses, especially as the interest rate spread (the differential between average interest rates charged to big businesses and small businesses) has increased substantially since the GFC.
Concerns have also been raised in the wake of the banking royal commission that the big four banks would be backing away from small business financing because of tougher scrutiny and regulations. The new securitisation growth funds could offset this withdrawal by the big banks from the SME space and allow newer players to make their mark.
No doubt there are still plenty of details to be ironed out and regulatory hurdles to be jumped before all of this comes to fruition. However, it’s good to know the federal government has been listening to the noise and agitation small businesses and their supporters have been making about access to capital. Hopefully, we’ll start to see some positive results in the next couple of years and a fairer go for small and growing businesses.
Disclaimer: Fi Bendall is a non-executive independent director of Judo Capital, a non-banking financial institution specialising in SME funding.