A new report from the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell, unpacks the issues facing small business access to finance.

The Affordable Capital for SME Growth report results from a inquiry into international and national initiatives implemented since the global financial crisis to increase the supply of capital to SMEs for growth.

ASBFEO’s 2017 Barriers to Investment study identified a funding gap where SMEs do not have access to the finance they need to start or grow their businesses.

Ms Carnell said other countries such as the UK, Canada and the US have already implemented initiatives that have successfully increased access to affordable growth capital to SMEs.

Although the funding gap for SMEs was also identified by the Productivity Commission’s draft report into competition in the Australian financial system and the Reserve Bank of Australia, Australia is “behind the eight ball” on accessible capital for small business.

“In Australia, lenders consider SME’s 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,” she said.

“Unfortunately, the unintended consequences of the financial services royal commission for SMEs might be an increase in banking regulation, making it even more difficult for them to access affordable growth capital.

“The fintech lending space is growing, providing low value, short term loans at interest rates significantly higher than banks which may assist immediate cash flow, but does not support long term growth.

“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 Affordable Capital for SME Growth report makes eight recommendations outlining initiatives to increase the supply of capital, and inform and prepare SMEs to be finance ready.

“On the supply side, we recommend establishing a Business Growth Fund based on the British model, to focus on long term funding solutions for SMEs that have the capability to grow,” Ms Carnell said.

“Another is an Australian Government Guarantee Scheme. Under the scheme member banks can apply for a government guarantee to partially support a loan to SMEs with a strong business case but insufficient real estate or business assets.

“On the demand side, our recommendations include initiatives to help SMEs prepare their business to seek capital, and raise their awareness of alternative sources of finance outside traditional banking.”

Further information about the Affordable Capital for SME Growth report is available on the ASBFEO website.

Business.gov.au has tips for SMEs looking to source finance to grow their business here.

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