The Prime Minister’s fund, planned to expand to $1 billion and provide a source of “patient capital” for small and medium enterprises, is sighted to face resistance in Senate after receiving criticism from private equity interests that have argued the fund should be an underwriter instead of a direct investor.
Advocating the bill’s adoption, Australian Small Business and Family Enterprise Ombudsman Kate Carnell said on Wednesday that the bill should be voted in as is.
“We strongly support the investment by the Commonwealth in the Australian business growth fund to provide much-needed patient capital to SMEs seeking to realise their high-growth potential,” Ms Carnell said.
“This investment is critical to the success of the fund. Previous attempts leaving it to industry to establish the business growth fund resulted in no action.”
The small business growth fund is aimed at SMEs that need patient capital and have been overlooked by venture capitalists and other investors. It is focused on helping an SME grow to a point where they don’t need the equity investment.
According to the current proposal for the fund, businesses will be eligible for long-term equity capital investments between $5 million and $15 million, in return for a 10 to 40 per cent stake in the business.
“The overwhelming feedback to my office from the small business community is that a lack of access to funding is their biggest barrier to growth,” the ombudsman said.
“RBA governor Philip Lowe has made a number of pertinent observations about the credit squeeze impacting the small business sector and how that’s effecting the economy more broadly.
“In November last year, Dr Lowe said we will all be better off if businesses have the confidence to expand, invest, innovate and hire people.”
She pointed out that the fund will help address the critical funding gap, as identified in the ASBFEO’s Affordable Capital for SME Growth report, for long-term, patient capital to enable up-and-coming, high-growth potential SMEs to flourish.
“Similar models in the UK and Canada have been tried and tested, providing access to affordable capital for businesses that have gone on to demonstrate successful growth.”
The government announced last year it is committing $100 million in funding to establish the BGF and partnering with other financial institutions to provide equity funding to SMEs. The major banks including ANZ, CBA, NAB and Westpac have each agreed to commit $100 million to the BGF. HSBC and Macquarie Group will each contribute $20 million.
This will give the BGF an initial investment capacity of $540 million, with the ambition to grow the fund to $1 billion as it matures.