How Abbott could live up to his big new promise

If you are waiting for detail on how Tony Abbott plans to make good on his promise to double the number of annual business starts to 30,000 should he win office next year, then it’s time to stop holding your breath – the Coalition aren’t likely to release anything much in the way of policy detail until the election date is known.

But that shouldn’t stop the SME community thinking and talking about ways to help Abbott achieve his goal, and it was in this spirit that I received a call from Steve Wright, executive director of the Franchise Council of Australia.

Steve hit upon the immediate problem – providing the funding for these new businesses is the big challenge that Abbott would need to face, particularly for entrepreneurs who are unable to put their house up as collateral for a loan.

“Removing red tape is good but it’s generally not a starter of a new business,” he says.

While Wright doesn’t believe a government should be flinging big dollops of money around, he does suggest governments can play a role by effectively standing behind new forms of SME loans.

Perhaps the best model is provided by the Small Business Administration in the US. It doesn’t make loans itself, leaving this to lenders, community development organisations, and micro-lending institutions.

But what the SBA does do is guarantee the loans, thereby reducing the level of risk for the lender. There are, of course, strict rules and requirements and entrepreneurs with access to alternative funding cannot apply.

In 2011-12, SBA supported just over $US30 billion in loans, the second biggest year on record.

“This system has operated in the US since the late 1950s, through every economic cycle,” Wright says.

Wright admits he has something of a vested interest in supporting the idea, as franchise systems would be a major beneficiary.

“A bank will lend to a new franchisee of an established franchise system much more readily than they will to a greenfield idea that hasn’t been tested.”

And he also admits that plenty will have a problem with the idea of putting taxpayer funds at risk, even if it is not the government doing the lending directly and Australia’s banks are good at managing risk.

But Wright says politicians in Canberra are becoming more interested in the idea and it would provide a way for the next government to provide real, practical assistance to new entrepreneurs.

He also points out that similar funding measures are being used around Europe, in Canada and particularly Asia, where governments are ploughing money into small business.

“What Taiwan and Malaysia are doing would make people drool here.”

It’s an idea that needs new work. But for Tony Abbott and his small business spokesperson Bruce Billson, it could provide the way for a big idea to become a big reality.

James Thomson is a former editor of BRW’s Rich 200 and the publisher of SmartCompany and LeadingCompany.