Small and medium-sized businesses may soon be able to borrow money on more competitive terms, under a $2 billion federal government plan to boost the fund available to smaller lenders.
The money will be injected into the small banks and non-bank lending market in the coming years through a new Australian Business Securitisation Fund.
The taxpayer-backed fund will buy packages, or securitisations, of secured and unsecured loans issued by those lenders, thereby giving them more money to on-lend – at potentially interest rates.
The initiative will mean more competition in the business loans market, currently dominated by the big banks which account for the more than 80 per cent of loans that are less than $2 million.
Small businesses currently pay borrowing rates of up to four percentage points higher than those for home loans.
“I’d like there to be no gap between the loans that are made to small businesses and the loans that are made to home lenders,” Treasurer Josh Frydenberg told 2GB Radio on Wednesday.
“Australia’s three million small businesses are the engine room of the Australian economy and for them to be strong … they need access to affordable finance,” Mr Frydenberg said.
Small businesses find it difficult to get financing without offering security such as homes and real estate.
But the new fund arrangement should address that because it would support both secured and unsecured loan markets.
Labor is open-minded about the concept but wants more details, including confirmation it won’t expose Australian taxpayers to undue risk.
“The question is over the level of government involvement and budget treatment and this looks light on detail,” shadow treasurer Chris Bowen said.
The Australian Business Securitisation Fund is expected to be operating by 2019 and will be overseen by the federal government’s debt portfolio manager, the Australian Office of Financial Management.
Mr Frydenberg said the fund would be classed as an asset, won’t increase the nation’s net debt burden and will support the growth of Australia’s securitisation bond market.
Meanwhile, the coalition is considering setting up an Australian Business Growth Fund to help small businesses access longer-term equity funding.
This would involve banks taking a stake in a business, enabling it to grow without taking on debt or giving up control.
Similar funds are already in place in the United Kingdom and Canada.
The establishment of an Australian one requires the Australian Prudential Regulation Authority to loosen the current arrangements governing the treatment of equity for bank regulatory capital purposes.
Mr Frydenberg will meet with regulators and stakeholders to discuss the fund at a roundtable later this month.