Parties must act on access to finance

We are now well into week two of the official election campaign and we are yet to see anything really substantive from either party on small business.

Yes, we’ve seen the Opposition promise the creation of a small business ombudsman, but we are still waiting on substantive policy on the really big issues of this election – tax reform, government support for business and, perhaps most importantly of all, small business access to finance.

While Small Business Minister Craig Emerson has supported the Australian Bankers’ Association in arguing that the problem is largely one of perception, this argument has been completely blown out of the water by Joseph Healey of the National Australia Bank, who says lending to SMEs has fallen dramatically.

“Banks on average can do three to four times more lending per dollar of capital into household and to mortgages versus businesses so household lending became much more attractive for the banks and we therefore saw a significant shift in the allocation of capital towards the household sector,” he told the ABC’s Inside Business earlier this week.

“We mustn’t lose sight of the fact that small businesses are the engine room of the economy, they employ close to seven out of ten working Australians and I believe our future prosperity really depends on having a strong, vibrant small business sector.”

We couldn’t have said it better, Joseph.

Now we need to see Emerson and Opposition small business spokesman Bruce Billson come out with some real, practical measures to address this huge problem.

Here at SmartCompany we’ve discussed plenty of ideas for this over the last six months, including the development bank model working so well in Canada and specific government guarantees for SME loans, which have worked in a number of OECD counties.

If you want another idea, look to the US, where the Small Business Administration administers $US358 billion of programs to help the small business community.

As the head of the SBA, Karen Mills said in an interview with Entrepreneur.com, the agency looks to support high-growth small businesses that typically become big employers, rather than what she calls “mainstreet” operations (such as small retailers) that can be very successful but tend to remain small.

The SBA provides a wide range of counselling services, helps to ensure government contracts go to SMEs (they’ve helped lift the rate of contracts going to small firms from 23% to 29%) and also provides a variety of programs to support R&D commercialisation.

Even more importantly, the SBA provides actual money to help these fast growing companies.

Since February 2009, the US Government, via the SBA, has spent just over $US1 billion to provide guarantees on small business loans and reduce borrower fees. These initiatives have see more than $US27.5 billion in loans provided to more than 60,000 small businesses across America.

A stunning 5000 banks offer the SBA loans, ensuring lenders stay closely connected to this sector.

The SBA is not without its problems though. Quite simply, it has run out of cash, and is currently lobbying to get support for two new bills that would lift the SBA’s loan limit from $US2 million to $US5 million and allow the agency to provide loans for fixed assets.

Clearly the US economy is in a very different state to Australia’s economy our programs do not need to be as big as those in recession-hit America.

But as the election campaign heats up, our politicians should be looking at programs like those run by the SBA for examples of how Governments can actively and cleverly support high-growth businesses and help them access the funds they need.