The Liberal National Government is targeting more than three million small businesses around Australia with two new initiatives aimed at improving access to better value funding for SME’s.
The proposed $2 billion Australian Small Business Securitisation Fund, which was announced on November 14, would allow a significant amount of extra funding to be provided to smaller banks and non-bank lenders which, in turn, could be passed on to small businesses in the form of business loans with more competitive terms.
Treasurer Josh Frydenberg said the fund would go some way to easing two hurdles many small businesses face when obtaining finance.
The first of these is the inability for many SME’s to acquire unsecured funding, or additional funding once they already have a secured loan, and the second is the actual cost of funding which Mr Frydenberg suggested was higher than it needed to be.
“Small business is the backbone of the Australian economy and getting access to finance is absolutely critical to their success, but they’re doing it tough. This is in the context of the Royal Commission, but also that they get charged higher interest rates by the banks than what you or I would if we took out a home loan,” he said in an interview with ABC New Breakfast on Wednesday.
“One of the reasons for this is that we have a very immature or underdeveloped securitisation market, so the small lenders or smaller banks can’t onsell their debt to other parties. This is where the Government is going to come in and use $2 billion of the Government’s balance sheet to enter into the securitisation market to accrue some of that high quality debt.”
Plans are also in the works from the Coalition to establish a bank-backed Small Business Growth Fund in Australia which would provide longer term equity funding to small businesses.
The fund would likely be similar to the Business Growth Fund in the UK which provides investments between £2m and £10m to SME’s throughout the UK and Ireland, though the Government remains in talks with the Australian Prudential Regulation Authority (APRA) and financial institutions about its establishment.
Welcome news for smaller banks and fintech lenders
The announcement of the $2 billion Australian Small Business Securitisation Fund was also met with encouragement from small and non-bank business loan providers which are set to get access to ‘significant’ additional funding under the scheme.
According to fintech lender Moula, the proposal is well-timed given the fallout from the Banking Royal Commission has seen bank lending tighten in recent months.
Moula said that an increase in funding to lenders outside of the big banks would make it easier for alternative lenders like themselves to increase their own lending to small businesses.
“We welcome the news of the Australian Business Securitisation Fund and the role it could play in boosting SME funding,” said Moula CEO, Aris Allegos.
“Healthy access to capital is vital for SMEs, and we’re proud to have created a platform which helps us back good businesses without making them jump through hoops. The new fund is great news for Australia’s 2 million SMEs, and we look forward to learning more about it.”
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