Eight takeaways to improve SME capital supply

Brokers play an integral part in helping SMEs discover their options and access funding outside mainstream bank channels

By Abel Riototar

04 Jul 2018

Australian Small Business and Family Enterprise Ombudsman Kate Carnell has released a report from the Affordable Capital for SME Growth inquiry, which looked into international and national initiatives that sought to fill the funding gap for SMEs.

“In Australia, lenders consider SMEs high risk and offer capital with restrictive terms and conditions, at high interest rates and demand bricks and mortar as security – which is usually the family home,” Carnell said in a statement. “I regularly remind people that SMEs are the engine room of the economy, but the engine won’t work without petrol, which is seed capital and growth finance.”

The report provides eight recommendations outlining initiatives to increase the supply of capital and to increase SME’s awareness of alternative funding sources outside traditional banking.

Recommendation 1: Business Growth Fund
The report calls for the private sector to establish an investment growth fund that’s focused on long-term funding solutions to support SMEs growth. The fund will offer both debt (loans) and equity (investment). The recommended offered amount ranges between $250,000 and $5m. Terms are up to seven years and secured against the business.

Recommendation 2: Government Guarantee Scheme
The report also calls for the government to establish a Government Guarantee Scheme where member banks can draw on the guarantee as a form security. This will help SMEs with insufficient real estate to get a longer loan term.

Recommendation 3: APRA prudential measures
The report recommends that APRA move away from the one-size-fits-all model, and allow lenders to apply risk weightings to specific risk factors.

Recommendation 4: Capital Enhancement Fund
The report calls for the government to set a capital fund in order to provide two-tier capital instrument to banks. This aims to address the funding difference between one-tier banks and other banks.

Recommendation 5: Personal Property Security Register
AFSA is called to overhaul its register, at least its public interface, so non-legally trained individuals can correctly register assets.

Recommendation 6: Finance-ready SMEs
The report recommends SMEs work with their trusted financial advisers to make sure their businesses are ready to apply for finance.

Recommendation 7: Open banking reforms
The report calls for the government to implement and promote the initiatives of open banking, which includes comprehensive credit reporting and consumer data right in line with the government’s schedule.

Recommendation 8: SME guide to financial products
The report recommends the ombudsman to develop a short guide on the range of available products of financial providers and what businesses suits these products based on business life cycle. The guide will then be distributed to SME advocates and networks, and released on social media.