What is the Australian Business Growth Fund?

The Australian Business Growth Fund is a funding source for small business of long-term equity funding backed by the Federal Government.

 

Background

The fund was officially launched by Treasury at the Australian Chamber of Commerce and Industry on 27 November, with ANZ, CBA, NAB and Westpac all committing $100 million – matching the federal government’s pledge. This funding will be provided over a five-year period.

HSBC has also said that it will contribute $20 million to the fund, which aims to “significantly enhance the ability of SMEs to access funding, filling a gap in the market that is preventing them from reaching their full potential”, according to the Treasury.

The government is aiming for the fund to grow to $1 billion as it matures.

 

Objectives

The main reasons for the funding are:

  • Security – businesses find it difficult to obtain finance other than on a secured basis – typically, against real estate.
  • Additional Funding – small businesses that have already obtained finance secured against real estate, but wish to continue to grow, also find it difficult to access additional funding.
  • Funding Costs – even when small businesses can access finance, funding costs are higher than they need to be
  • Control – Many small businesses find it difficult to attract passive equity investment which enables them to grow without taking on additional debt or giving up control of their business.

 

Australian Business Growth Fund

To overcome this and ensure that small businesses are able to fulfill their potential and continue to underpin economic growth and employment, the Australian Business

Growth

Fund will invest up to $2 billion in the securitisation market, providing significant additional funding to smaller banks and non-bank lenders to on-lend to small businesses on more competitive terms.

The Australian Business Growth Fund a Federal Government backed fund that aims to increase competition in small business lending by boosting alternative lenders. It will be administered by the Australian Office of Financial Management (AOFM), consistent with their prior involvement in the Residential Mortgage Backed Securities Market in 2008.

The Australian Business Growth Fund will purchase secured and unsecured loan packages from smaller banks and non bank lenders, which will then lend to small business in order to create a level playing between small businesses and the country’s largest lenders.

The Australian Business Growth Fund news comes after the publication of the Affordable Capital for SME Growth by the Australian Small Business and Family Enterprise Ombusdman, which identified a major funding gap for Australian SMEs to start or grow their business.

 

Structure

Australian banks and superannuation funds will inject equity capital into the Australian Business Growth Fund which in turn invests in Australian small businesses.

Australian Business Growth Fund

 

 

Similar Models

The Australian Business Growth Fund is expected to follow similar international precedents.

By way of example, since its establishment in 2011, the United Kingdom’s Business Growth Fund has invested some $2.7 billion in a range of sectors across the economy.

A similar fund has not emerged in Australia, in part, as a result of the unfavourable treatment of equity for regulatory capital purposes.

While the exact detail has not been announced, Bulletpoint has provided an indication below.

 

Investment Background

Australian Business Growth Fund views investments as partnerships. As a minority equity investor, the teams that this funidng invests in and the relationships they build with them are fundamental to the fund’s collective success.

When the fund invests, they take a long-term view and treat the relationship seriously from day one. The Australian Business Growth Fund are diligent and methodical, but strive to be pragmatic and collaborative to keep companies focused on their operations.

 

Investment Criteria

Established Australian businesses will be eligible for long-term equity capital investments of between $5 million and $15 million, where they have generated annual revenue between $2 million and $100 million and can demonstrate three years of revenue growth and profitability.

The Business Growth Fund’s investment stake will be between 10 and 40 per cent, allowing small-business owners to maintain control while also allowing the Business Growth Fund to offer the kind of financial support to drive business growth. The Business Growth Fund 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.

The Australian Business Growth Fund targets growing companies across industries based on the following criteria:

  • Revenue – $5 to $100 Million
  • Equity – 10% to 40%
  • Management – Entrepreneurial focus
  • Investment – $3 to $20 Million
  • Location – Based in Australia
  • Growth – Significant expansion opportunity
  • Leverage – Less than 50%
  • Business type – Post start-ups and proven business models

 

Timing

Australian businesses will be able to access the Australian Business Growth Fund in mid 2020.

 

Benefits

The benefits of this funding are:

  • Structure – the fund structure allows them to take a long-term and patient approach with their investments. They can provide follow-on capital as needed and seek to exit at the right time for all shareholders.
  • Control –  the fund focuses exclusively on minority positions, and their approach provides entrepreneurs with a collaborative, value-added partner – not a controlling shareholder.
  • Network – With support from Australia’s leading financial institutions, The fund offers access to a powerful knowledge network, mentorship from our talent network, and a unique opportunity to collaborate with like-minded entrepreneurs within the fund’s portfolio.
  • Responsiveness – The investment team moves quickly to provide a clear indication of their interest in pursuing a potential investment. Their term sheets provide clarity on value, terms, and timing.

 

Application Form

In order to obtain funding, you will need to be able to answer the following questions:

  1. What is your name and contact details?
  2. What is the company name?
  3. Where are you located?
  4. How old is the company?
  5. What industry sector is the business in?
  6. Tell us a bit about the business and why you’re looking for funding?
  7. What is the company turnover?
  8. What is the company profit?
  9. What is the expected growth rate over the next 3 years?
  10. How much are you looking to raise?
  11. What has been the source of funding to date?

Key Documents

Please note, the Australian Business Growth Fund is not currently taking applications.

 

 

Australian Business Growth Fund Bill 2019

The Australian Business Growth Fund Bill 2019 (Bill) gives effect to the Government’s commitment to increase the availability of patient capital
for small and medium enterprises by authorising the contribution of $100 million to invest in an Australian Business Growth Fund.

  • Date of effect: This Bill commences on the day after the Royal Assent.
  • Proposal announced: The Government announced its proposal to invest in an Australian Business Growth Fund on 4 November 2019.
  • Financial impact: The establishment of an Australian Business Growth Fund is estimated to have the following financial impact:
  • The Australian Business Growth Fund Bill 2019 (Bill)

 

 

Latest News

02 March 2020 – Senators urged to pass equity bill that could see SMEs flourish

Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), urged senators to pass the Australian Business Growth Fund Bill on Wednesday. Ms. Carnell explained that the bill would significantly encourage growth and promote economic expansion for small and medium-sized businesses around the country.

The fund hopes to address lack of access to funding and equity investment to small and medium sized enterprises (SMEs), which are often overlooked by venture capitalists and investors.

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