Aussie no-go remains as UK plots state-backed small business bank

UK Chancellor George Osborne has unveiled a plan to set up a state-backed small business bank, although both sides of Australia’s political divide remain opposed to introducing a similar model here.


Osborne, who has described the UK’s banking system as one of the recession-hit country’s biggest problems, has proposed the introduction of a state-sponsored small business bank.


Small business banks already exist in Germany, Ireland, Canada and the United States. The UK government has struggled to come up with a successful public model, although a group of London entrepreneurs have created a privately-run version.


According to the Financial Times, the bank would aim to bring together the various forms of small business assistance provided by the government, but with a “private-sector focus”.


Interestingly, the bank would operate solely online, at least initially.


According to Treasury officials, the bank could potentially enter into partnerships with the private sector or use the markets by securitising loans. More details are expected to be announced later in the year.


However, cash-strapped start-ups hoping for a similar small business bank in Australia are likely to be disappointed, with neither major party keen on the concept.


Australia’s Small Business Minister Brendan O’Connor could not be reached for comment but the Federal Government has previously ruled out the set-up of a small business bank.


In May, O’Connor said that the major banks “couldn’t give a toss” about lending to start-ups.


Bruce Billson, Australian shadow small business minister, says the Coalition has a “comprehensive plan” to support small businesses, but it doesn’t involve a small business bank.


“We’ve got a comprehensive plan to provide more support to small business, and that’s our focus. We have no plans at this time to go down the pathway that’s been mooted in the UK,” Billson told StartupSmart.


“Having said that, there’s very little information – about what the UK may be contemplating – to know precisely what they have in mind.”


With regard to increasing access to finance, Billson believes the banks are better placed than the government to help the small business sector.


“The problem of too-limited finance seems to have eased. The new challenge is satisfying banks that small business proposals are credit-worthy,” he says.


“The banks are very much focused on small business cashflow as the basis for lending decisions rather than the expectation of capital growth.”


“This has proved particularly challenging for a number of small businesses… We think banks can do more in explaining what it is they’re looking for [from] small businesses.”


“We also feel there’s a need to make sure the regulatory framework doesn’t create additional disincentives to small business lending.”


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