Small and medium sized businesses (SME) are set to get the boost they need, with the banking industry backing a new initiative. The big four buy-in sees the Australian business growth fund, which assists SMEs to achieve their full potential bolstered by $520m.

Treasurer Josh Frydenberg has confirmed that ANZ, CBA, NAB and Westpac will each commit $100m to the fund, with HSBC contributing $20m. Further, the federal government is also pledging an additional $100m.

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell said the commitment from the banking industry provides a much-needed confidence and capital boost.

“We welcome both the government investment in the fund, which has now been matched by the major banks,” Carnell said.

“The Australian business growth fund was a recommendation in our Affordable Capital for SME Growth report, which identified the need to address a critical funding gap for long-term capital to enable high growth potential SMEs to flourish.”

Business growth fund

Announced last year and confirmed in April, the business growth fund is an initiative introduced to assist SMEs with annual turnovers of between $2m and $50m.

Administered by an independent board and chair appointed by shareholders, it is expected to mature to $1bn over three to five years and help between 30 and 50 small businesses annually.

Carnell said regardless of investment, the business growth fund would allow SME operators to maintain control of their business while scaling significantly.

“Importantly the fund will be managed by private sector expertise and will invest between 10 per cent and 40 per cent in the chosen businesses, allowing the business owner to maintain their controlling interest, while giving them the funds they need to invest in growth,” she said.

“Similar models in the UK and Canada have proven successful, giving businesses the chance to thrive with much-needed access to affordable capital.”

Current conditions

It’s a poignant time for the banking industry to get behind small business. The fallout from the banking royal commission has seen lending tighten, and for existing businesses achieving strong results, the news is welcomed.

Carnell said the business growth fund would not only alleviate some of the challenges facing SMEs, but also increase economic prosperity.

“This initiative comes at a time when many respected economists, including those at the RBA, are publicly recognising one of the biggest barriers to growth for SMEs is access to affordable capital and this has been a critical factor holding the economy back,” she said.

“The Australian business growth fund will significantly encourage business growth and promote economic expansion.”

The government will also continue discussions with other financial institutions that are considering investing in the fund.