James Stevens (Sturt, Liberal Party) Share this | Hansard source

I begin by commending the member for Mallee on the very eloquent way she has outlined the exact types of businesses that are going to benefit from this government initiative.

Generally, as a free market capitalist, I'm not in principle comfortable with governments investing in the private sector. But this is a very important and specific initiative to address what is a real problem for our smaller businesses in this country—that is, the way in which they can access alternatives to debt finance, specifically, in this case, through equity. We've got a very mature equity market for larger businesses through the stock exchange and other avenues where, if they're of a certain scale, they can pursue equity financing to expand and grow their business. But there's a point at which the cost of pursuing that becomes completely prohibitive, if their scale isn't significant enough.

In this bill, the Australian Business Growth Fund Bill 2019, we are talking about businesses with a turnover of between $2 million and $100 million a year. Clearly, businesses of that scale are not in a position to go through the very significant cost of developing an IPO, going into the equity market and satisfying all of the hoops they should jump through before they can access finance through listing. For businesses that find that cost prohibitive, clearly their only real source of capital for their business at the moment can be through debt. We certainly have historically low interest rates at the moment, but we can't count on that being the case indefinitely into the future. Regardless of interest rates and the cost of debt finance, there's a big difference between financing business growth through debt and financing it through equity. This is clearly an initiative that will provide that opportunity. (Quorum formed) I've slightly lost my train of thought there. I think I was talking about the narrow opportunities that debt-only as an avenue provides to smaller businesses that are covered in this fund.

What we're doing is creating a mechanism where these smaller businesses—small and medium-sized businesses—can pursue equity financing to expand their businesses. This is going to make a really big difference to those businesses, because until now there hasn't been a logical avenue for them to pursue that sort of capital. It does change the dynamic of capital raising and how you can pursue business expansion, because when you borrow money there's a completely different objective, a different risk profile and a different set of criteria that someone who's lending money provides over a new business expansion plan than that of someone who's investing equity, particularly in this case, which is going to be long-term equity—not capital to be moved in and out of the business quickly for short-term profit seeking but patient capital that is going to be in the business for the long term to help support a new business-growth plan. That's completely different to borrowing money. Borrowing money requires, obviously, a process that is going to be relevant to the lender as far as repayment of the loan and confidence in repayment of the loan are concerned—that is, being able to meet those repayments in the period that the loan is provided. When you're investing in equity, given you're on the ownership side rather than on the debt side, you have to take the risk that the idea and expansion are going to have a return in the long term. It takes the risk off the business and the idea to expand the business when you don't have to meet very-strict repayment criteria, particularly in the early years of the expansion that you're pursuing.

I think this is going to be very exciting. I hope it's going to see a lot more new opportunity created for small and medium-sized businesses in this country—that is, businesses with up to $100 million in turnover. We're talking about businesses that can be quite significant but not quite big enough to warrant going into the mature equity markets in this country and the other avenues that are there for the bigger players. So I'm very excited about this. I note that in the United Kingdom and in Canada—two economies quite similar to the Australian economy, with the same kind of profile of SME businesses—it's been remarkably successful.

Initially, we're talking about a fund towards about $500 million, with $100 million of government funding and then money from the four banks and Macquarie. Hopefully, as proof of concept comes through in the initial stages of this fund, businesses will get off the ground and start to make investment decisions, and hopefully those decisions will be successful. Of course, the scheme does require that businesses have demonstrated revenue growth over three years and profitability. So it's not overly speculative; it does require track record. I hope that there will be more enthusiasm from other people in the financing sector to put their money into this fund as it proves its concept. But we need to seed it and we need to show that we're backing it, and that's exactly what this bill does with $100 million.

I've got a lot of businesses in my electorate who will fit the profile of the type of business that can access equity funding through this fund, and there will be many, many thousands—tens of thousands—of businesses across the country that will be able to consider this. It's an option. There'll be some businesses that will still seek to finance through debt. They might find that more appealing based on the business plan that they've got and based on the trajectory that they're on, but there'll certainly be categories of businesses that will see this as a new way of expanding their business that they didn't have open to them earlier. What that's going to mean is not only business growth but, more importantly, jobs. It's going to mean more employment outcomes in our economy, and I warmly commend the bill to the House.

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