In a statement, Mr Frydenberg said the government would introduce a $2 billion Australian Business Securitisation Fund, which will be invested in the securitisation market.
By doing so, the government is hoping to provide “significant additional funding to smaller banks and non-bank lenders to on-lend to small businesses on more competitive terms”.
“Small businesses find it difficult to obtain finance other than on a secured basis – typically, against real estate. Small businesses that have already obtained finance secured against real estate, but wish to continue to grow, also find it difficult to access additional funding,” Mr Frydenberg said in a statement announcing the measure.
“Even when small businesses can access finance, funding costs are higher than they need to be.
“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.”
The Treasurer said such a fund has not previously existed in Australia in part because of “unfavourable treatment of equity for regulatory capital purposes”, an issue he said that APRA is willing to review.
“To fast track its establishment, the government will host a meeting of key stakeholders in Canberra during the next sitting period.”
Such a fund is not out of the blue: in mid-2018, when releasing the Affordable Capital for SME Growth Report, Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell called for government-backed investment into the SME sector through such a fund.
“We recommend establishing a Business Growth Fund based on the British model, to focus on long-term funding solutions for SMEs that have the capability to grow,” Ms Carnell said at the time.
Small lenders welcome chance to compete with big banks
Smaller lenders applauded the announcement and suggested it will deliver a big shift in the way SMEs access credit to support their growth ambitions.
Prospa joint CEO Beau Bertoli labelled the new fund “a huge win for small business”, which will address cost barriers for smaller SME-focused lenders.
“Small businesses are the engine room of our economy. They are a major driver of employment and investment. And with the ability to borrow to fund their growth, small business has the opportunity to make an even larger contribution to Australia’s future economic growth and prosperity,” he said.
“High costs of capital for lenders like Prospa directly impacts interest rates and the availability of affordable finance for small business. There has been a clear market failure on the supply side, with a small securitisation market attempting to solve a very large funding need.
“This government intervention will deliver more affordable funding options to Australia’s small businesses at a time when their success is critical to Australia’s growth.”
Spotcap managing director Lachlan Heussler also suggested the new fund will be a game changer for SME finance.
“Mr Frydenberg's proposal meets a real financial need and is a win-win for both Australian small business owners and for the alternative lending industry in Australia,” he said.
“Without sustainable lending and affordable finance options, small and medium-sized businesses will struggle to grow, innovate and create more jobs for our economy.
“By lowering borrowing costs, the proposed fund is a good step in increasing competition between the dominant, big lenders and online, unsecured lenders, such as Spotcap.”
Meanwhile Peter Langham, CEO of Scottish Pacific, said the best part of the new fund is its approach to responsible lending rather than simply pumping money anywhere.
“The fund’s clincher is the idea of rated programs. It means instead of supporting irresponsible lending by new players and risking taxpayers’ money, the government will be improving the ability of good lenders to help even more business owners,” Mr Langham said.
“This is one of the most measured, thought out and equitable initiatives I have seen from a government to support small business owners.”