Could a First Business Grant get more people into business?
Politicians and business leaders are exhorting Australians to have a go at starting their own business but lack of finance holds many back.
The banks only seem prepared to lend to existing small businesses where they can get property security, so how do would-be first time business owners get a start, especially if they don’t have property security?
Here is a new idea that could solve this problem – the First Business Grant.
What is it?
The First Business Grant is the business equivalent of the First Home Owner Grant scheme that helps Australians achieve their dream of buying their first home. This is a national scheme funded and administered by the states. Last year in NSW and Victoria alone 7100 grants were made for $185m (average $10,800 each). This scheme has a social benefit but the economic benefits are less apparent.
The First Business Grant would enable Australians to achieve their dream of establishing their own business and it would generate economic as well as social benefits. This is hugely important given changes in our society such as younger people looking for more autonomous, flexible working arrangements, the increasing number of older Australians needing to work longer, the impact of technology and industry restructuring causing significant job losses.
How would it work?
Just like the First Home Owner Grant, people looking at starting a business for the first time could be eligible for a one-off government funded grant of up to say $10,000 to assist getting their business up and running. This sum could be used to cover costs such as building a website and purchase of equipment like a computer or a vehicle.
Whilst the sum available to each new business owner under the scheme might be limited to say $10,000, to encourage employment growth this could be increased by $1000 for every full-time employee taken on by the new business to a maximum of $15,000.
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Governments could authorise banks to approve applications based on agreed eligibility criteria. Every new business owner needs to open a bank account so when they come to do this they can also apply to the bank of their choice for a grant.
When the new business owner approaches the bank to open an account and apply for the grant, they would also be free to negotiate additional bank facilities subject to normal terms and conditions. The banks all say they are keen to support start-ups and SMEs so we can expect them to jump at the opportunity of winning more new business customers.
Eligibility criteria might include:
- Proof of establishment of new business such as registration of business name, incorporation of company etc.
- Australian citizenship and a tax file number.
- Financial and business literacy. Certain minimum requirements in terms of understanding key issues in starting and running a new business. For instance, satisfactory completion of government tools such as Starting Your Business Checklist and Writing a Business Plan
- The recipient must work in the business and have no other paid employment.
- Undischarged bankrupts would be ineligible and only one grant can ever be made to the same individual.
Whilst rorting is always a possibility, controls ought to be able to be implemented to mitigate this risk.
The major benefits of the First Business Grant include:
- Facilitates more Australians having a go at starting their own business.
- Creates new jobs, adds to GDP and tax base.
- Reduces our reliance on big corporates and large scale industries like mining.
- Gives banks more reason to engage with and support new businesses.
If 100,000 new businesses nationally each year were to receive $10,000 each, the cost would be $1b pa. This ought to be able to be justified in terms of the benefits outlined above. By way of comparison, the recently shelved Paid Parental Leave Scheme was projected to cost $5.5b.
It is encouraging that so many people appreciate the importance of the small business sector in driving economic growth but to achieve the desired outcomes we must do more to help enterprising people become small business owners.
The First Home Owner Grant has helped thousands of Australians achieve their dream of home ownership and the First Business Grant could do the same for those who dream of owning their own business.
Neil Slonim is an independent business banking advisor and commentator and the founder theBankDoctor.com.au.