The Australian government has announced a new initiative to support small business finance following a series of steps to crack down on bank mistreatment of SMBs.
Reports in Reuters said Wednesday (November 14) that the government will purchase up to $1.44 billion in small business loans from non-bank lenders to increase availability of working capital for the nation’s SMBs.
“Small businesses find it difficult to obtain finance,” said Australia’s Treasurer Josh Frydenberg in a statement, adding that the government “will invest up to [AUS]$2 billion in the securitization market, providing significant additional funding to smaller banks and non-bank lenders to on-lend to small businesses on more competitive terms.”
Reports noted that bank lending to small firms has constricted in recent years amid market pressures to reduce risk exposures. Currently, Australia’s top four banks, Commonwealth Bank, Westpac Bank, Australia and New Zealand Banking Group and National Australia Bank, secure about 80 percent of their small business financing by property. Reports said this often comes in the form of the small business owner’s home.
Central bank analysis suggests small business loan interest rates can be as much as 2.15 percent higher than financing provided to larger corporates.
But non-bank lenders struggle to fill in the gaps left in the small business lending market because they must finance their loan operations via crowdsourcing or via the debt capital markets, reports noted. Smaller banks, meanwhile, cannot sell debt to other parties.
“This is where the government is going to come in and use A$2 billion of the government’s balance sheet to enter the securitization market to acquire some of that debt,” Frydenberg said in an interview with the Australian Broadcasting Corporation. He added that the government will emphasize due diligence and collaborate with credit rating agencies to focus on high-quality debt.
The Australian office of Financial Management will purchase the debt, Frydenberg added.