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A$1B Australian SME Business Growth Fund announced amid criticism

A$1B Australian SME Business Growth Fund announced amid criticism

(25 April 2019 - Australia) Prime Minister Scott Morrison has pledged to help create 250,000 new small businesses over the next five years by unveiling an equity plan to help existing small and medium businesses (SMEs) expand.

The model is based on the government partnering with banks and providing SMEs with equity needed for expansion while not forcing them to give up control of their business, as is the case currently. The concept is based on similar funds operating in the United Kingdom (UK) and Canada and will be seeded with A$100 million in government funding. The target is a gross amount, not net, given 10,000 small businesses fail each year. The definition of a small business is one with an annual turnover less than A$10 million or one with less than 20 employees. The Australian Business Growth Fund is designed to grow existing businesses rather than create new ones.

Daniel Wild, director of research at the Institute of Public Affairs, believes the Business Growth Fund is a short-sighted proposal which ignores red tape and industrial relations as the major constraints on small business growth in Australia. “The product of misguided public policy is a crisis in business investment. New private business investment in Australia is just 11.5 percent of GDP, which is lower than it was during the Whitlam years” he stated. There were 38,000 fewer new businesses created in 2018 compared with a decade earlier, according to the Australian Bureau of Statistics (ABS). Recent research by the Institute of Public Affairs estimated there would be 250,000 more businesses in Australia today if business creation continued at pre-Global Financial Crisis (GFC) levels.

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell welcomed the announcement of an Australian Business Growth Fund, a recommendation in the ASBFEO’s Affordable Capital for SME Growth report. “Our report identified the need to address a critical funding gap for long-term, patient capital to enable our up-and-coming, high growth potential small to medium enterprises (SMEs) to flourish,” Ms Carnell said. “We support government investment of A$100 million into the Australian Business Growth Fund and a matching commitment by the Commonwealth Bank of Australia, National Australia Bank and HSBC Bank.

“However, we question the absence of commitment by Westpac, ANZ and Australia’s super funds. Importantly, the Fund will be managed by private sector expertise and will benefit SMEs with annual turnovers between A$2 million to A$50 million. Minority shareholding up to 40 percent will enable these businesses to retain control of their company, a very different scenario from traditional private equity funding. Similar models in the UK and Canada are tried and tested; addressing barriers to accessing affordable capital for businesses that have gone on to demonstrate successful growth. We also support modification of Australian Prudential Regulation Authority (APRA) regulations to set an appropriate risk weighting to make it a viable proposition for private sector investment.”

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