Huge new fund to support small business lending

Business loans for small businesses are notoriously difficult to get but that could all be changing. In great news for small business owners who are struggling to get credit, the Australian government has legislated for a $2 billion fund to support small banks and non-bank lenders to lend to small business. The government has also promised an additional $1 billion to support high potential businesses.

Traditionally, family and friends and credit cards are a popular, if sometimes problematic, source of funding for small business. That’s because small business loans are considered a lot more risky than a straight residential mortgage by banks and other lenders. And that includes small business loans that are secured by a mortgage over a residential property.

Treasurer Josh Frydenberg said the Australian Business Securitisation Fund (ABSF) will provide significant additional funding to smaller banks and non-bank lenders to on-lend to small businesses. The fund is expected to allow the smaller lenders to compete more effectively with the big four banks, bring down borrowing costs and loosen strict loan rules for small business borrowers.

“80 per cent of SME lending is held by the major banks,” Mr Frydenberg told parliament.

“There are a number of non-banks and smaller banks entering the SME market … but many of these lenders are constrained by their ability to access funding on competitive terms.”

The fund will support lenders to provide loans of up to $5 million to SME’s.

Young business owners, in particular, are struggling to get credit to support their business ambitions, according to data released last week by MYOB’s Business Monitor study of 1,000 Australian small business owners.

Tim Reed, the chief executive of MYOB, said the new government fund will address a market need for more finance for small business owners.

“For too long there has been a lack of competition in the small business lending market,” said Mr Reed.

A new breed of small business lenders entering the market to compete with the established big banks and other business lenders will also help borrowers access funding in the small business segment said Mr Reed.

The Prime Minister Scott Morrison also pledged, during the May election campaign, to establish a second $1 billion capital fund called the “Australian Business Growth Fund,” to invest in up to high-potential businesses with an annual turnover between $2 million and $50 million.

Compare small business loans from Australia’s banks, credit unions and other lenders here.