Equity Funding for Small Businesses Coming

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Small businesses find it difficult to secure equity funding without giving up control of their business.

The Government has announced their intention to facilitate the creation of a privately owned Business Growth Fund to provide $1 billion in equity funding to existing small businesses rather than create new ones.  The government will seed the fund with $100 million.

This should not be confused with the existing Business Growth Fund which provides matched funding of up to $50,000 to enable Queensland businesses to buy equipment and services to expand their business. (www.business.qld.gov.au/starting-business/advice-support/grants/growth-fund

Legislation will be passed to allow Australian banks and superannuation funds to invest equity capital into the Australian Business Growth Fund which will then invest into small businesses to create 250,000 new small businesses over the next five years.

A small business has an annual turnover of less than $10 million and fewer than 20 employees. Over 10,000 small businesses fail each year.

The Australian Prudential Regulation Authority (APRA) will regulate the new growth fund which is anticipated to grow to $1 billion and back 30-50 businesses with annual turnover between $2 million and $50 million annually.

APRA need to sign off on granting capital relief to the fund and has been liaising with the government and banks about the planned entity structure. It is understood APRA’s criteria include: 

  • there be only one such fund; 
  • a diversity of SMEs receive equity to avoid concentration risks; 
  • fund management is independent of its bank owners; 
  • it be open for new funding members to join; 
  • the funding source to be drawn from about five or six institutions; 
  • and contributions from individual banks be capped.

Similar funds operate in United Kingdom and Canada. The United Kingdom’s Business Growth Fund has invested $2.7 billion since 2011.

While NAB has welcomed the announcement, ANZ and Westpac have decided not to join the public-private small business fund. The Commonwealth Bank is waiting on the criteria before committing to the fund. Without support from all major banks the planned fund will struggle to reach the $1 billion target.  

Additional support includes the proposed new company tax rate of 25 per cent for businesses with turnovers under $50 million which is supported by both parties.

Also, as a result of fears of a credit crunch in the wake of the banking royal commission, the government announced the Australian Business Securitisation Fund. The $2 billion fund is expected to commence on 1 July 2019 to provide funding to small banks and non-bank lenders to lend to small and family businesses.

The Business Growth Fund is one part of the government’s two part small business finance policy announced last month which also includes a potential $2 billion investment in a securitisation fund (https://treasury.gov.au/small-business/absf) to help small businesses access debt finance outside the big banks as well as the growth fund (https://treasury.gov.au/small-business/bgf) to provide longer term equity funding.

For more information on the grants available for your business contact Pattens Group at grants@pattens.com or 1800 PATTENS

Written by Bruce Patten: With over 30 years’ experience successfully claiming government grants, Bruce is the grants expert. He has a passion for securing grants to help business succeed. His long list of successful clients have received the government funding they needed for research, development, management, commercialisation, export, small business support and a vast range of other activities.

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