The Morrison Government announced on 27th November 2019 that it will establish an Australian Business Growth Fund that aims to invest an ambitious $1 billion in Australian small and medium sized businesses.
The Australian Business Growth Fund will start with an initial investment capacity of $540 million, funded by $100 million each from the Government, ANZ, CBA, NAB and Westpac. HSBC and Macquarie Group will each contribute $20 million.
Initially a Coalition election promise back in April 2019, the fund’s announcement comes after the major financial institutions agreed on their terms and operational structure.
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What is the Australian Business Growth Fund?
The idea of the Australian Business Growth Fund was first publicly canvassed in June 2018 by the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell. It was the number one recommendation in the ASBFEO’s Affordable Capital for SME Growth report.
The ASBFEO’s Inquiry into sources of capital for business growth concluded that finance was both scarce and expensive. The Business Growth Fund was one of the ASBFEO’s eight recommendations to address the market failure to provide affordable capital to growing SMEs.
International precedents suggest the new growth fund will boost the Australian economy. The United Kingdom’s Business Growth Fund has invested $2.7 billion in the UK economy since it was established in 2011.
Now, the Morrison Government’s Australian Business Growth Fund will provide equity funding of up to $15 million to eligible SMEs to help them grow and fulfil their potential. In return for an investment stake of 10 to 40 per cent, the Business Growth Fund will provide long-term capital investment alongside support for business growth strategies.
The Australian Business Growth Fund will operating as a commercial entity independent of the Government and participating banks. No doubt it will expect a return on its portfolio companies. Still, the Business Growth Fund’s investment stake means that business owners can maintain their controlling interest.
How can the Australian Business Growth Fund help your business?
The $5 million – $15 million investment cap per business suggests a limited number of Australia’s 3 million SMEs will receive the capital boost. Nevertheless, the Business Growth Fund is expected to fill a gap in funding options for businesses beyond the start-up phase.
Often turning to private equity or bank loans to raise capital, SME owners risk losing ownership of their business, or even the family home, in a bid to fund growth.
Speaking at the launch on 27th November, Treasurer Josh Frydenberg described the investment as “patient and passive capital” over a five-year period, ideal for businesses that would rather have equity than debt.
Are you eligible for the Australian Business Growth Fund?
Australian businesses that meet the two criteria are eligible for funding from the new growth fund:
- Must have generated annual revenue between $2 million and $100 million, and
- Can demonstrate three years of revenue growth and profitability.
Unlike a lot of start-up funding where profitability isn’t crucial, the Business Growth Fund is clearly looking to invest in businesses that have already punched through the profitability ceiling.
The details of how to apply for funding have not yet been released.
In brief:
- The Australian Business Growth Fund will initially invest $540 million in eligible Australian SMEs.
- Portfolio companies will get $5 million to $15 million equity funding over five years plus support for business growth strategies.
- Eligible SMEs must already be profitable and generating annual revenue between $2 million and $100 million.
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