Government looks to super funds to back $2 billion small business plan

Superannuation funds will be courted to participate in the federal government’s $2 billion push to increase funding for small business.

The government’s two part policy announced on Wednesday features a potential $2 billion investment in a  securitisation fund to help small businesses access debt finance outside the big banks and the “encouragement” of the establishment of a growth fund to provide longer term equity funding.

Mr Frydenberg told Fairfax Media on Friday there was a clear need for the funds “with the big banks responsible for more than 80 per cent of small business loans that are less than $2 million, there are few alternative funding routes.”

Treasurer Josh Frydenberg announced the two funds on Wednesday.
Treasurer Josh Frydenberg announced the two funds on Wednesday. Credit:Alex Ellinghausen

Securitisation fund

The securitisation fund will operate through the government buying bonds that are drawn from a pool of small business loans and providing cheaper funding to smaller banks and non-bank lenders through new or existing warehouse facilities.

The government will receive interest from these loans on a monthly basis which is where it will make its money and a well placed source said the government hopes superannuation funds will also participate in a similar way.

Ultimately the source said the government envisages it will not have to keep investing as the market matures which could take around three to five years.

Looking to superannuation funds

Joseph Healy, is the co-founder of SME lender Judo Capital, which is likely to benefit from the fund and said if the government is willing to invest money through the fund, superannuation funds may be willing to invest as well.

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“Being able to invest into the securitisation fund and access a pools of funds rather than individual funds is a much better way for SMEs to access the superannuation market,” he said.

Eva Scheerlinck, chief executive of the Australian Institute of Superannuation Trustees, said new investment opportunities are always welcome but it’s too early to say what the response will be from super funds.

“Super funds have a fiduciary duty to their members to ensure that every investment made is the right one for their portfolio and the investment outlook,” she said.

“At the end of the day, the assets that trustees invest in still have to be of investment grade and assessed against a rigorous criteria to ensure members get the best outcomes.”

Australian Institute of Superannuation Trustees chief executive Eva Scheerlinck.
Australian Institute of Superannuation Trustees chief executive Eva Scheerlinck.Credit:Steven Pam

Small business ombudsman Kate Carnell helped develop the policy and said the securitisation fund would encourage smaller banks and non bank lenders to lend to small businesses.

“For second tier banks the cost of lending is a mix of risk and cost of capital,” she said. “Why don’t they lend now?  The cost of capital is high and the dilemma of lending to small business or SMEs is that the risk is higher. By bringing down the cost of capital you can make the business case for some of these lenders to focus on small business.”

Small businesses having trouble securing finance


Small businesses having trouble securing finance

Small businesses are being promised easier access to finance through a new $2 billion fund to be unveiled by the Morrison Government.

Growth fund

The second part of the government’s policy is to promote the establishment of a growth fund.

The government is consulting with the Australian Prudential Regulatory Authority and the banks over how the fund would work.

The fund would provide passive equity investment to small businesses to enable them to grow without taking on additional debt or giving up control of their business and is likely to be modelled on similar funds in the United Kingdom and Canada.

Since its establishment in 2011, the United Kingdom’s business growth fund has invested some $2.7 billion in a range of sectors across the economy.

Unlike a traditional private equity investment or a ‘Shark Tank’ style investment, businesses would not have to give up control or offer a board seat.

A similar fund doesn’t exist in Australia in part because the amount of capital APRA requires banks to hold for these investments makes it unprofitable for the banks however this treatment is under review.

The government’s role will be limited to setting up the rules around the funds operation and ensuring reporting and auditing.


PDD holds back finance deptt directive waiving off interest of industrial units

PDD holds back finance deptt directive waiving off interest of industrial units

Power development departments circular to hold back waiver on interest, penalty and surcharge on power arrears as announced in the 2018-19 state budget for industrialists, small scale industry unit holders, sick industries and hotels has drawn flak by the business community.

As per a circular of the Power Development Department (CEJ/TS-I/Amnesty/14897-916) “since the administrative department of PDD has not approved the budget announcement, the orders of the finance department to waive off the interest and penalty is advised not to be implemented”. The closing date fixed by then state cabinet for such amnesty has already expired in September which has created anxiety among industry and hotel players.

In June 2018, finance department had approved an amnesty scheme which was announced in state budget 2018 regarding waiver off 100 percent interest and penalty on all the power arrears as on January 31, 2017 owed to the government by industries, hoteliers and tourist resort owner, registered with the industries and tourism departments.

President, Federation Chambers of Industries Kashmir (FCIK), Muhammad Ashraf Mir said redressing the long pending demands of the business community of waiving-off the interest, penalty and surcharge on power dues was committed by the government but not fulfilled. Mir said the waiver has not been granted despite issuance of orders from finance department.

“The industry in the state especially Kashmir has borne the brunt of being under deep stress and for that then finance minister had extended the power amnesty for all the industry. Sick industry and businesses that were most affected by the unpredicted circumstances would have been given a breather with this amnesty. But government has failed to fulfil its commitment,” Mir said.

As per the terms of the amnesty scheme, industry and hospitality set-ups were asked to make the outstanding payment of power dues as on March 31 by or before September 30 in a maximum of three equal instalments. The order stated 100 percent waiver on “interest and penalty on power arrears as on December 31, 2017 owed to the government by the small scale industries registered with the department of industries subject to the condition that the outstanding payment of 31-03-2018 is paid by or before 30-09-2018 in a maximum of three equal instalments”.

Mir said most of the industry based power consumers took benefit of the government order and paid principal announcement which was made mandatory by the order but have been “left in lurch” by not fulfilling the budget announcement, Mir added.

“Now the industry is being denied benefits announced by the SRO. In these circumstances how can the industry trust any of incentives which government promises it,” Mir said.

Kashmir Chamber of Commerce and Industry delegation which recently met Chief Secretary BVR Subramanyam has raised the issue of non-fulfillment last budgetary announcements including the power amnesty.  Sheikh Ashiq, president, KCCI said the  circular issued by the PDD was neither desirable “nor is acceptable at any cost come what may” adding that issue of amnesty has been taken up in chamber meetings with Principal Secretary Industries and Commerce and the Chief Secretary of the state.

Kashmir Hotels and Restaurant Owners Federation (KHAROF), president, Wahid Malik said power amnesty for industrial and hospitality sector would provide relief to the hotel industry operating in distress and fragile conditions in the valley.