30 November 2017
Australia needs affordable loans for small business
By Kate Carnell
I released a study into factors impacting small to medium enterprise investment on Friday.
The study identifies several barriers including red tape, energy prices and unreliability, and access to capital.
In 2015, the Institute of Public Accountants recommended a state-backed loan guarantee scheme in its Small Business White Paper to increase the availability of much-needed, affordable loan finance to the small business sector.
The paper noted that Australia is one of the few countries in the developed world without such a scheme.
In Fairfax Media recently, Westpac business banking chief David Lindberg said that lending to small firms was booming.
Similar claims were made by other banks to a parliamentary committee.
These comments miss the point that small business start-ups struggle to obtain affordable finance because the banks require them to have property security or significant cash equity.
We need a means to help energetic, clever young people acquire or grow a successful small business if they don't have bricks-and-mortar security.
This isn't only about venture capital for technology start-ups. It could be a coffee shop or an automotive repair business with a solid trading history.
Resounding feedback from SMEs is that access to finance remains a significant barrier despite a healthy pipeline of businesses suitable for investment.
If there are barriers to access finance, this stifles business growth, employment and investment.
Young, aspiring small business operators are particularly disadvantaged and increasingly rely on their parents to provide seed finance, as they're unlikely to have significant equity in a home.
The "Bank of Mum and Dad" is often called into action. Yes, it offers convenience and flexibility, but it puts retirement savings at risk.
It also raises social equity issues in that the children of affluent parents have greater opportunities to buy or grow a business.
The study canvasses other investment barriers including red tape and energy prices.
There have been numerous programs to reduce red tape but the outcomes have been perceived to be window dressing, with little progress made towards removing regulatory burdens at all levels of government.
Meanwhile, additional regulation is added ad hoc to address particular public concerns without identifying the cost and time impact on small businesses.
A recent survey found that 34 per cent of small businesses spent more than six hours a week on red tape.
Larger businesses can afford to bring compliance specialists in-house or outsource to external specialists to deal with regulatory requirements.
They are also more able to pass on regulatory costs to other businesses and customers.
SMEs are disproportionately impacted due to the owner-operators needing to personally bear the compliance burden and their lesser ability to fund access to specialist assistance.
This results in a tendency for small businesses to deliberately remain small due to the regulatory burden.
I'm hoping the study released by my office stimulates discussion that leads to policy ideas that improve the investment climate for small business.