The Coalition government has introduced legislation to establish the $2 billion Australian Business Securitisation Fund, designed to ease funding pressures for Australia’s SMEs.
If passed, the securitisation fund would provide additional funding to smaller banks and non-bank lenders to on-lend to small businesses on more competitive terms.
The Australian Business Securitisation Fund would be administered by the Australian Office of Financial Management (AOFM), which was previously involved in the residential mortgage-backed securities market in 2008.
In a joint statement, Treasurer Josh Frydenberg and Minister for Small and Family Business, Skills and Vocational Education Michaelia Cash said: “With better access to more competitive finance, small and medium-sized businesses will be able to grow, fulfil their potential and continue to underpin Australian economic growth and employment.
“Small and medium-sized businesses find it difficult to obtain finance other than on a secured basis – typically, against real estate. They also find it difficult to access additional funding, once they have pledged all of their real estate as collateral.
“Even when small businesses can access finance, funding costs are higher than they need to be.”
The government ministers added: “The securitisation fund will unlock a competitive funding source for smaller lenders, allowing them to compete with the major banks and on-lend to small and medium-sized businesses on more competitive terms.”
The funding difficulties faced by small businesses was highlighted by a recent survey of 1,750 business owners nationwide, commissioned by SME lender Judo Capital and conducted by East & Partners.
The study revealed that the gap in SME funding, which has emerged from an inability to access finance that they would otherwise utilise, has surpassed $83 billion.
The Judo research found that the average SME applied for $800,000 in new borrowings in the last year, with those that successfully obtained finance securing $600,000 in new credit, while the average unsuccessful credit application was $1.1 million.
According to respondents, the main reason SMEs were prevented from accessing credit in the last year was as a result of collateral requirements (34 per cent), slow turnaround times (16 per cent), inappropriate terms/structure (11 per cent), interest rate (8 per cent) and an unsatisfactory credit rating (4 per cent).
Conversely, SMEs that accessed the full amount of new capital they sought cited credit approval speed (63 per cent), ring fencing of security needed away from personal assets (58 per cent), actual availability of the full debt sum being sought (50 per cent) and mitigating terms and conditions (42 per cent) as the most important factors in completing the deal.