Government urged to roll out loan guarantees

The Institute of Public Accountants is calling on the federal government to introduce loan guarantee schemes for SMEs and boost financial literacy of business owners in a bid to improve national productivity.

The Institute of Public Accountants (IPA), in partnership with the IPA Deakin SME Research Centre, has released the second edition of the Australian Small Business White Paper to outline the challenges facing the small business sector and how they can be overcome.

The 74-page report contains a number of key policy recommendations, focusing particularly on assisting the small business sector in the areas of productivity and efficiency, regulatory overload, taxation, access to finance, workplace relations, employment dynamics, innovation, competition policy, family firm financing, internationalisation, SME owners’ mental health and cyber security.

While the report puts forward 10 “big vision recommendations” for improving small business productivity in Australia ­— such as reducing direct taxes, standardising the company tax rate at 25 per cent, allocating the Small Business Minister a permanent position in cabinet and having the Prime Minister form and chair a small business advisory council (among other recommendations) — the report also delves into changes to SME financial markets.

After outlining that there is a “need to broaden the terms of traditional lending to SMEs” and noting that “alternative options for SME finance, such as asset-based lending, are growing in popularity”, the report noted that among the more “prominent constraints identified by Australian business owners are the lack of access to debt financing, high taxes and ongoing regulatory imposts”.

It continued: “With the exception of some state-based financing initiatives, Australia is still counted among the few developed countries that do not have a government-backed loan guarantee scheme for small businesses.”

As such, the IPA has recommended that the federal government bring in a loan guarantee scheme to address the “mismatch” in the supply and demand for small business loans.

The other recommendations in relation to finance principles and alternative financing call on the government to:

  • Review its current policy settings for SME finance to ensure it follows global best practice (as specified by the G20 and OECD).
  • Provide “appropriate incentives” that encourage financial institutions to “urgently re-examine their finance offerings for SMEs”, including the provision of varying options allowing SMEs access to funding for starting up a business and for working capital.
  • Initiate loan guarantee schemes.
  • Allocate priority funding to vocational education courses to enhance SME owners’ financial literacy, business strategy and management skills.
  • Provide incentives (such as tax deductibility for education costs) to SME owners for financial literacy and business management education.
  • Fund research initiatives to support the work of the OECD in developing a generally accepted definition of SMEs.
  • Support initiatives for the introduction of a new bank that services the specific financing needs of the SME sector.
  • Pass legislation allowing proprietary companies to take advantage of equity crowdfunding.

The report continued: “Governments and financial institutions can address the finance gap through alternative finance models such as more asset-backed loans (including the recognition of intangible assets as collateral), project financing and leasing.

“Governments, financial institutions and industry groups should also encourage SMEs to use alternative sources of finance as a means of bridging the SME finance gap.”

The IPA’s chief executive officer, Professor Andrew Conway, added: “The world does not stand still and issues impacting small business constantly change; the impact and speed of technological advancements is just one example. However, there are some areas that still remain as ongoing issues such as access to responsible and affordable finance.”

He continued: “Our white paper has been produced to consider and debate real policy options for small business efficiency, productivity and growth.

“Simply put, if we are to drive economic prosperity and retain or improve the level of living standards that we currently enjoy, we must do a lot more in support of small business. Our intention is to turn Australia into the best place in the world to start and run a small business.”

Likewise, Deakin Business School’s professor of accounting and co-director of the IPA-Deakin SME Research Centre, George Tanewski, added: “Our research also indicates that small business can play an important role in lifting national productivity growth and, more importantly, national living standards through a variety of ways, including improved diffusion of knowledge, products, processes and technologies across businesses.”

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