Government to legislate commitments to SMEs

The legislation will increase the instant asset write-off threshold from $20,000 to $25,000 and extend the initiative for another year from its existing June 2019 end-date to 30 June 2020 for SMEs with an annual turnover of less than $10 million.

In a joint statement, Treasurer Josh Frydenberg, Assistant Treasurer Stuart Robert and Minister for Small and Family Business, Skills and Vocational Education Michaelia Cash noted the benefits of the scheme.

“The increase and extension of this initiative will improve cash flow for hard-working Australian small business owners by bringing forward tax deductions, providing a boost to small business activity and encouraging more small businesses to reinvest in their operations and replace or upgrade their assets,” the ministers said.

“Our government first introduced the $20,000 instant asset write-off in the 2015-16 budget. In the first year alone, more than 300,000 small businesses bought assets taking advantage of this initiative according to the latest available data from the Australian Taxation Office – this equates to an average of around 800 businesses per day making a purchase with this initiative.

“Our government backs small business, because we understand that when businesses are able to keep more of their own money, they are able to invest back into the business, to create jobs, to boost their productivity and grow.”

The federal government has also introduced legislation to establish the $2 billion Australian Business Securitisation Fund, designed to ease funding pressures for Australia’s SMEs.

If passed, the securitisation fund would provide additional funding to smaller banks and non-bank lenders to on-lend to small businesses on more competitive terms.

The Australian Business Securitisation Fund would be administered by the Australian Office of Financial Management (AOFM), which was previously involved in the residential mortgage-backed securities market in 2008.

“With better access to more competitive finance, small and medium-sized businesses will be able to grow, fulfil their potential and continue to underpin Australian economic growth and employment,” the government said.

“Small and medium-sized businesses find it difficult to obtain finance other than on a secured basis – typically, against real estate. They also find it difficult to access additional funding, once they have pledged all of their real estate as collateral.

“Even when small businesses can access finance, funding costs are higher than they need to be.”

The government ministers added: “The securitisation fund will unlock a competitive funding source for smaller lenders, allowing them to compete with the major banks and on-lend to small and medium-sized businesses on more competitive terms.”

The funding difficulties faced by small businesses was highlighted by a recent survey of 1,750 business owners nationwide, commissioned by SME lender Judo Capital and conducted by East & Partners.

The study revealed that the gap in SME funding, which has emerged from an inability to access finance that they would otherwise utilise, has surpassed $83 billion.

The Judo research found that the average SME applied for $800,000 in new borrowings in the last year, with those that successfully obtained finance securing $600,000 in new credit, while the average unsuccessful credit application was $1.1 million.

According to respondents, the main reason SMEs were prevented from accessing credit in the last year was as a result of collateral requirements (34 per cent), slow turnaround times (16 per cent), inappropriate terms/structure (11 per cent), interest rate (8 per cent) and an unsatisfactory credit rating (4 per cent).

Conversely, SMEs that accessed the full amount of new capital they sought cited credit approval speed (63 per cent), ring fencing of security needed away from personal assets (58 per cent), actual availability of the full debt sum being sought (50 per cent) and mitigating terms and conditions (42 per cent) as the most important factors in completing the deal.

[Related: $83bn SME funding gap exposed]