Actively encouraging Government guaranteed loans

Steve Wright, Franchise Council of Australia

The Franchise Council of Australia (FCA) is actively encouraging the Federal Government to implement a small business loan program to assist those setting up a new small business that might otherwise not be able to secure a loan.

Government-guaranteed loans of this nature have been highly successful in the United States (US) and the United Kingdom (UK). The US Small Business Administration (SBA), which has operated since 1953, has helped nearly 20 million businesses and has a portfolio of roughly 219,000 loans worth more than $84 billion. Like the SBA, the UK Government-guaranteed lending scheme – the Enterprise Finance Guarantee (EFG) – also helps small viable businesses that may be struggling to secure finance by providing loan guarantees of up to $1.5 million.

The Australian economy is missing out big time. The FCA estimates that every franchise system in Australia would have at least five worthy candidates that cannot secure finance, not because of a lack of viable proposition, but because of lack of collateral or guarantee. One thousand franchise systems x 5 x $200,000 in average borrowings = $1,000,000,000. As this is a conservative estimate – the franchise industry turnover is $128 billion - it could easily be $10 billion in missed opportunity.

What the FCA is asking from government is that it makes use of an unused bank wholesale funding guarantee to provide a guarantee to business start-ups which lack the collateral to secure a loan but otherwise meet all lending and business ownership criteria.

In a franchise sense, it means getting over the line a new franchisee that meets approval criteria but is unable to raise necessary collateral.

It is not just new businesses missing out on funds; it is also existing businesses according to a recent report by Dun & Bradstreet, ‘Giving Small Business Credit – Finding New Opportunities in Australia’s Most Dynamic Credit Market’.

The report says nearly 400,000 small businesses are missing out on access to mainstream finance largely because credit providers are unable to adequately assess and price small business risk. It goes on to say that of the more than one million unincorporated businesses in Australia, more than 650,000 have no major financial obligation and nearly 400,000 would immediately qualify for finance with a risk profile ranging from minimal to low.

It is time to get serious in Australia about small business support, and the US and UK small business assistance models are a great starting point.