PM LOOSENS PURSE-STRINGS
Franchise Council chief considers smallbusiness funding.
The Franchise Council of Australia recently welcomed the federal government’s response to calls from business and lenders to act to underpin availability of credit for cash-starved small to medium businesses (SMEs).
The FCA understands that the government is developing a package of economic measures to boost small business, as Prime Minister Scott Morrison prioritises smaller companies ahead of corporations in the lead-up to the next federal
election.
The policies include boosting access to funding for small business to overcome the risk of a credit squeeze, improved tax dispute resolution with the Australian Taxation Office and helping small companies get paid faster by large customers.
In a first step, the Morrison government will inject $2 billion into the small business loan market in an unprecedented effort to boost SME lending.
The new small business funding policy recognises that it has become increasingly hard for small businesses to obtain finance other than on a secured basis, typically, against their main personal asset – their home.
The FCA is pleased by the announcement that the new government fund will underpin SME loans issued by smaller banks and non-bank lenders, boosting funding to lend to small businesses and potentially lowering SME borrowing costs.
The creation of a taxpayer-backed securitisation fund to invest in small and medium enterprise credit will also potentially facilitate new investment from institutional investors, such as superannuation funds.
Franchising mainly comprises small businesses which make a major contribution to the Australian economy
– there are 1200+ different franchise systems, more than 80,000 franchised businesses and more than 500,000 people employed in the sector across urban, rural and regional Australia.
We want to see them grow and succeed and a transition from credit squeeze to credit crunch would have severe impact.
It has always been a challenge for small business to access debt finance, but even when small businesses can access finance, funding costs are higher than they need to be.
The situation has worsened as the Banking Royal Commission has waved the big stick of stricter lending laws and loan serviceability rules.
The government’s shake-up should increase competition against the big four banks which account for more than 80 per cent of business loans of less than $2 million and charge an interest rate premium of up to 4 percentage points to small businesses.
The FCA has been greatly concerned that any extension of the consumer responsible lending regime into SME lending could have significant negative impact in a sector already struggling in a tight market environment.
The FCA believes that potentially vulnerable small business customers should be protected without restricting finance to those who can afford it.
Australia is a very franchised economy. With around 95 per cent of franchisees representing small business, the economic and employment contribution is too big to ignore – over 500,000 Australian jobs and an economic contribution of around $146 billion every year.
As a business model, franchising is unrivalled in its capacity to take a business idea and expand it into a nationally or internationally franchised network. It allows franchisors and franchisees the opportunity to achieve their business dreams, and for employees to fulfil their career goals.
Healthy businesses sustain healthy communities. From contributing tax revenue, to driving a demand for skills and jobs to reinvesting locally, sustainable businesses drive a strong national economy and well-resourced local community – and franchising plays a significant role.
Small business is increasingly being squeezed on a number of fronts, including escalating energy costs, compressed margins, a complex industrial relations framework and availability of finance.
The FCA doesn’t want to see any slowing of investment from the sector because that will impact economic growth and jobs.
We welcome the new government initiatives to support small to medium business, including many in franchising.
In a first step, the Morrison government will inject $2 billion into the small business loan market in an unprecedented effort to boost SME lending.