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Why the Australian government plans to invest $2 billion in SME finance

Blog By Brett Isenberg – 22 November 2018

Octet welcomes the Federal Government’s recent announcement of plans to create a loan program of $2 billion to support Australian SMEs, called the Australian Business Securitisation Fund. At its core, this unprecedented investment will entail the purchase of loan packages from smaller banks and non-bank lenders that will furnish them with more capital to on-lend to relevant businesses.

“This is a positive move that aligns with our long-standing vision of seeing more quality Australian businesses grow and prosper,” said Octet Chief Commercial Officer Brett Isenberg, “This funding gives proven lenders more inventory to help SMEs, increasing their access to cash flow and giving businesses more options in the lending market.”

Since the global financial crisis, with the implementation of measures like Basel II/III and APS120, banks are required to hold increasingly more capital in proportion to their SME loan exposure. As a result, they are less able to readily offer loans to smaller businesses, despite their ability to repay and their overall potential. This is forcing even strong businesses that were historically “bank quality” to look elsewhere for funding.

According to Isenberg, this program is encouraging for two reasons:

  1. It highlights the government’s recognition that adqueate SME funding is critical to the growth of our economy and, moving forward, more funding to this sector will come by way of non-bank players, illustrating how important they are for the sustainability of the SME market.
  1. The fund appears to be a rated program, meaning the quality of debt originated is critical, encouraging better quality lending practises.

Lenders with a proven track record, such as Octet, can now better satisfy the demand for the necessary finances to see more businesses grow.

“In conjunction with our recent multi-hundred-million dollar facility received from Westpac and 255 Finance, this investment means that Octet has greater capacity to empower more Australian businesses with the finances they need to succeed,” said Isenberg.

Whilst the move seems like a promising one for smaller lenders, SMEs and the economy, we will have to wait and see what the actual effects of the Australian Business Securitisation Fund are.

Octet looks forward to working with the government and other financiers to inject power into the Australian business landscape.