Why the Australian Business Growth Fund doesn’t go far enough
The newly elected Morrison government’s promised Australian Business Growth Fund needs to be expanded to include acquisitions writes Second Squared founder Lui Pangiarella.
In 2019, the Morrison government announced a plan for an Australian Business Growth Fund (ABGF) to provide equity for SMEs, which would follow the models of similar funds in the UK & USA.
This comes on the heels of the establishment of the Australian Business Securitisation Fund (ABSF), which received Royal Assent in April 2019 and is designed to enable better competition and supply of debt funding to small businesses, following the lead of similar funds established around the world, including the UK and USA. Done correctly, it means less SMEs can expand without being forced to give up control of their business.
Australian SMEs struggle to get debt funding when they don’t have access to real estate collateral, partly due to the criteria imposed by major lenders in Australia and partly due to the capital adequacy regulations imposed by government regulators. The ABSF won’t fix this issue, but it will help.
There’s also not the same market in Australia that matches the supply of capital with the demand. Patient, non-controlling capital that backs in owners to drive the business forward is just hard to come by in our country.
In Australian SMEs are lacking the capital they need to succeed. While the ABGF (and ABSF) aren’t the panacea that will solve all the problems that stop business growth in Australia, they’re a start.
But there are three areas the proposals must address.
Funding of acquisitions. In the SME space, Australian banks are notoriously loathe to fund acquisitions. This means there’s a massive gap in the market – and with an aging population and a huge number of businesses on the precipice of needing to transition to a new generation of leadership, funding acquisitions is a must if we want to keep our economy thriving.
Uncertainty. The ABGF has only been promised by the Morrison government without a lot of detail, and Australian business needs to ensure that they hold the government to account in following through. Australian business deserves to be fully supported by the newly elected government.
It doesn’t go far enough. Small business is the lifeblood of the Australian economy and needs all the support it can get. The industry suffers from red tape, lack of entrepreneurial talent and inflexible industrial relations systems. Both major political parties have talked about these issues, but their policies don’t go far enough to address them. Accelerating the timing and funds dedicated to the ABGF and ABSF will go some way to helping.
As part of my work, I deal with talented entrepreneurs looking to find SMEs that they can acquire and grow. One of the problems they face is finding the necessary capital and finance to deliver on these opportunities. Without those opportunities, Australia is missing out on the talent and growth it needs to continue to expand its economy.
The ABGF and ABSF are a start. But they need to be guaranteed, they need to be expanded and more needs to be done to enable and support a vibrant SME sector in Australia.
About Lui Pangiarella
Lui is an experienced facilitator and executive coach particularly in the areas of organisational performance, strategy, culture and leadership development.