Those wishing to access the government’s new SME business fund will need to demonstrate that they are working towards achievable, demonstrable and sustainable improvements to SME lending as well as have the hallmarks of a “sound and responsible” institution.
The Australian Office of Financial Management (AOFM) have now released the finalised guiding principles for those wishing to access the Australian Business Securitisation Fund (ABSF), which provides additional funding to smaller banks and non-bank lenders to on-lend to small businesses on more competitive terms.
The ABSF will be administered by the AOFM, which was previously involved in the residential mortgage-backed securities market in 2008.
The office announced in April that it was developing a set of principles to guide its investments under the ABSF, which are principles-based, rather than prescriptive – adding that it is “not seeking to standardise the risk or other underwriting characteristics of loans made within this market”.
These will serve as a reference for initial assessments within each investment proposal round (yet to be announced) in order to produce a shortlist for investment decisions.
It is hoped the principles will therefore help identify transactions that are “most likely to contribute to the government’s overarching objective of increasing the availability of finance to SMEs over time on more competitive terms”.
After having consulted on its draft principles in May, the AOFM has now released the final guiding principles to the market, which are grouped under two broad categories: market impact and risk management.
Under market impact, the guiding principles will require those applying to the ABSF to demonstrate:
The principles also look at risk management, such as:
At an AOFM roundtable in Sydney on Wednesday (23 July), the AOFM outlined the role the principles will play in filtering proposals and outlined how the ABSF is progressing. A similar industry roundtable is to take place at the KPMG office in Melbourne on Thursday (25 July).
However, the government office has said that when it calls for proposals, they will likely include an invitation to proponents to directly address the investment principles and a request for a description of the lender’s operating model, product range and market coverage, “including both qualitative and quantitative information regarding loans under management”.
[Related: Bill to establish $2bn SME fund approved]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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