The ANZ, CBA, NAB and Westpac have all committed $100M each over five years to match the federal government’s $100M pledge.
HSBC and Macquarie Group have also committed $20M each bringing initial investment capacity to $540M.
Negotiations between the government and large superannuation funds are ongoing with no figures on how much will be invested by super funds.
Banks have a strong motivation to support this fund. It maximises the opportunity for economic growth which, in turn, creates a better environment for banks to pursue business.
The ABGF aims to provide longer term, passive equity funding to small and medium businesses. It will operate as a commercial entity independent of the Government and participating banks.
It will expect a return on its portfolio companies however the <40% investment stake means that business owners can maintain their controlling interest.
Whilst the draft bill is before parliament, in principle, the Cumberland Business Chamber wholeheartedly welcomes the fund and applauds the collaboration of the major banks, the government and the super funds in due course.
Indicative criteria to qualify for investment
The ABGF is proposed to be industry agnostic and touted to offer $5M to $15M funding for a 10% to 40% equity investment stake in growing Australian companies with the following criteria:
• Australian based businesses with annual turnover of $2M to $100M.
• Post start-ups with proven business models.
• Can demonstrate three years of revenue growth and profitability.
• Where a significant expansion opportunity has been identified.
• With management who have an entrepreneurial focus.
• Where the business is leveraged less than 50%.
Structure and basis for the fund
The fund is based on the UK and Canadian business growth funds. The UK’s Business Growth Fund started eight years ago and according to founding shareholder HSBC, it has invested over 2 billion pounds into 285 companies over this time.
The objective is to invest in a diverse portfolio of companies which allows it to manage its overall risks by offsetting losses in some companies with gains elsewhere, taking a long-term approach to investing.
Since it became operational in 2018, the Canadian fund has invested CAD63 million into local companies.
The ABGF also proposes to offer non-financial support, for example, through the provision of strategic advice, mentoring, talent management and network referrals for small and medium businesses to access.
Responding to small business need for growth capital
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO), alongside the Reserve Bank, has argued there aren’t enough avenues to capital available for high potential companies in Australia.
The ASBFEO’s Inquiry into sources of capital for business growth concluded the finance was both scarce and expensive.
The ABGF was the number one of ASBFEO’s eight recommendations in the ASBFEO’s Affordable Capital for SME Growth report, to address the market failure to provide affordable capital to growing SMEs.
The Council of Financial Regulators (CFR), in a report released in October, said tighter lending standards for small business had been a significant focus for the body.
It noted that “lending to small business has hardly grown over the past year, compared with a 5% increase in lending to large businesses.”
Does the ABGF go far enough to support SMEs?
It goes some way towards matching the demand for SME capital with supply and this is certainly a first of its kind for Australian small and medium businesses however an area that would further enhance business is acquisition funding.
The ABGF principally supports expansion and growth. However, in Australia, with our aging population, sufficient capital to fund a business to transition to a new generation, whether familial or arm’s length, can be hard to come by.
Want to know more?
Whilst the ABGF is still a work in progress, there are other grants and business incentive programs available to businesses with annual turnover between $2M and $100M.
Feel free to give me a call on 0419 444 010 or email: president@cbchamber.com.au to discuss or know more.
Angela Haynes is President of Cumberland Business Chamber and a director at KPMG Greater Western Sydney.
