Frydenberg to make $2bn pitch for small business votes

Josh Frydenberg will launch a $2bn government-backed intervention into the $300bn SME lending market.

Treasurer Josh Frydenberg in Sydney yesterday. Picture: AAP

Josh Frydenberg will launch a $2 billion government-backed ­intervention into the $300bn small and medium-sized business lending market, in a move to ­combat the lack of competition and inflated interest rates.

In a move to sharpen the Morrison government’s small business pitch, the Treasurer will today ­announce the creation of the ­Australian Business Securitis­ation Fund, which will inject extra funding into the market.

The fund will buy bonds packed with small and medium-sized business loans that are sold to investors by regional and non-bank lenders.

The government’s intervention is expected to lower the cost of borrowing for small enterprises, which have been stung by high interest rates over the past decade, sapping the economy of much-needed credit for firms to expand.

Mr Frydenberg is also working to establish an ­industry-backed Australian Business Growth Fund, with the banking regulator reviewing its capital requirement rules to enable banks to more ­easily invest passively in small businesses.

“Small businesses find it ­difficult to obtain finance other than on a secured basis — ­typically against real estate,” Mr Frydenberg said. “Even when small businesses can access ­finance, funding costs are higher than they need to be.”

His stimulus package marks the latest in a string of measures aimed at winning back small business voters ahead of the election, including fast-tracking tax cuts for companies with turnovers under $50 million, slashing red tape for employee share arrangements, improved tax dispute resolution with the Australian Taxation ­Office and helping small com­panies get paid faster by large ­customers.

Scott Morrison’s attempts to shore-up support from small ­business in the lead up to next year’s election was headlined by his move to return the small business portfolio to cabinet.

The Australian understands the government has also tasked Treasury with searching for new ­measures to announce before next year’s election. The Australian ­Office of ­Financial Management will run the new small business funding program, as was the case when the Rudd government stepped in to buy $15bn worth of securitised mortgages during the global ­financial crisis funding market freeze.

The four major banks dominate the small and medium business lending market. The interest rates they charge for small business loans have remained uncompetitive for close to a decade.

While rates on corporate bonds ­issued by large companies have dropped in the wake of the global financial crisis, loan rates for small business have remained stubbornly high compared with those sold to large businesses over the same period.

Smaller lenders and the unregulated “shadow banks” are dependent on the securitisation market to package up loans and on-sell them to investors. With the government guaranteeing to chip in for some of the demand, lower costs are expected to filter through to small business customers.

The home loan securitisation market is substantially developed, with almost $100bn worth of mortgages rolled up into bonds over the past two years, compared with just $125m worth of business loans ­securitised over the same period.

The launch of the securitisation fund comes as the Reserve Bank has said it was closely watching the availability of credit in the market. Official statistics showed the value of housing finance had slumped 14 per cent over the past 12 months, the worst result in eight years.

Mr Frydenberg urged banks to “keep the books open” and continue to lend, particularly for small businesses.

To fast-track the establishment of the Australian business-backed growth fund, the government will host a meeting of key financial ­system players in Canberra this month, including bank regulator, the Australian Prudential Regulation Authority.

The fund will be modelled on Britain’s Business Growth Fund, which was set up in 2011 with capital of £2.5bn, funded by five major banks, and provides investments to small business. The British fund is now profitable and has invested more than £1.45bn across 220 companies since formation.

“A similar fund had not emerged in Australia, in part, because of the unfavourable treatment of equity for regulatory capital purposes,’’ Mr Frydenberg’s statement said.

He said APRA was on board with ­reviewing the rules to help create the fund.

Additional reporting: Joyce Moullakis