Federal government to support SME financing with $2 billion securitisation fund

The federal government has announced that it will introduce a new tax-payer backed fund that will inject $2 billion into loan markets to help small and medium enterprises (SMEs) obtain financing.

Treasurer Josh Frydenberg and small business and skills minister Michaelia Cash today announced the creation of the Australian Business Securitisation Fund, which will invest in the securitisation market, providing 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,” Frydenberg and Cash said in a joint statement.

“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. Even when small businesses can access finance, funding costs are higher than they need to be.”

The Australian Business Securitisation Fund will be administered by the Australian Office of Financial Management (AOFM), consistent with their prior involvement in the Residential Mortgage Backed Securities Market in 2008.

The treasurer said that the government was also in consultation with APRA and a number of financial institutions in regard to the establishment of an Australian Business Growth Fund that would provide longer term equity funding to small businesses, which enables them to grow without taking on additional debt or giving up control of their business.

The government said the fund would be expected to follow similar international precedents, such as the United Kingdom’s Business Growth Fund, which has invested $2.7 billion in a range of sectors across the economy since its establishment in 2011.

“A similar fund has not emerged in Australia, in part, as a result of the unfavourable treatment of equity for regulatory capital purposes. APRA has indicated that it is willing to review these arrangements to assist in facilitating the establishment of the Australian Business Growth Fund,” the ministers’ statement said.

Frydenberg is to host a meeting a key industry representatives in Canberra in late November to discuss the establishment of the equity growth fund.