Banks yet to get on board Govt’s SME growth fund
Independent entity will fill gap in capital market — minister
The Government has yet to gain any agreements or commitments from the banks to support its proposed $100 million Business Growth Fund despite expecting to be only a minority investor in the fund.
The fund was announced as part of the Budget and is aimed at providing access to finance for small and medium-sized businesses.
Stuart Nash, Minister for Small Business, said it had set aside $100m over the coming year for Crown investment as a minority shareholder in a Business Growth Fund, alongside private banks.
“It is intended the fund will help fill a gap in the capital market for SMEs that require growth capital not available through current market providers.”
But beyond that it appears the details are slim.
New Zealand Bankers’ Association chief executive Roger Beaumont said while it knew the fund was happening it was at an early stage.
“Discussions with some banks on a potential Business Growth Fund are at a very early stage. No agreements or commitments to participate have yet been reached.”
A spokeswoman for the minister said the Government had agreed in principle to invest in and establish a Business Growth Fund, but further details were still being worked through by officials and bank representatives.
“Officials have met regularly with representatives from NZ’s major banks to explore a potential Business Growth Fund and will continue to do so over the coming months to refine the Business Growth Fund’s purpose, its proposed key features, and the key commercial considerations.”
She said that it was anticipated that participating banks would contribute investment funding alongside the Government, but the banks’ involvement and the detail of what those contributions could be is something that officials are still working through with the banks.
“At this stage in the process, prior to confirmation by these banks of their involvement and level of investment, the Government will not be specifying the banks.”
The fund is expected to be independently managed as a private investment company with a board responsible for overall strategic and investment guidelines and independent management that would make investment decisions.
The fund would take equity positions in the companies rather than loaning them money with the banks expected to refer business clients looking for equity rather than debt to the fund.
But the fund will be an odd fit for the banks who are typically riskaverse and even more so in an economic environment that is already uncertain.
Taking equity in companies is usually the realm of private equity companies funded by high-net-worth individuals who are prepared to take on much more risk.
It’s also unclear if small businesses would be keen to have banks take a share in them, even if it is indirectly via a fund.
Other government-backed small business schemes have had mixed success.
When Covid hit in March 2020 the Government brokered a deal with the banks to set up a Business Finance Guarantee Scheme which at the time they said would be worth $6.2 billion and help support SMEs through loans.
But by April 2021 just $1.78b had been lent to 3052 businesses through the scheme.
Banks said it was due to the fact many businesses were reluctant to take on further debt with the outlook still uncertain for industries such as tourism.
But an interest-free loan scheme for small businesses offered via the Inland Revenue was hugely popular.