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Call for small business govt loan backing

The federal government should consider a loan guarantee scheme to support small businesses that struggle to secure finance, a new report says.

Rigid lending criteria which require businesses to provide collateral to secure a loan mean many viable small businesses miss out because they do not have adequate assets, the report by the NSW Business Chamber has found.

"Our study indicates that access to finance conservatively affects more than 200,000 businesses, forcing them to slow their growth, lay off staff or shut down altogether," NSW Business Chamber chief executive officer Stephen Cartwright said.

"According to ABS (Australian Bureau of Statistics) data, access to finance is the number one barrier to innovation and the third-largest barrier to general business activity."

Mr Cartwright said 37 per cent of loan rejections by banks were due to a lack of collateral.

"Banks should be able to lend to the best businesses, rather than those with the best collateral," he said.

The Small Business Access to Finance report, prepared with Deloitte Access Economics, recommends the federal government consider a partial credit guarantee scheme under which government underwrites part of a business loan.

Credit guarantee schemes in the United Kingdom, Canada and the United States had delivered gains in employment, business growth and exports, the report said.

The report suggests as guidelines a government guarantee of 65 to 85 per cent of a business loan at an interest rate of 0.5 per cent to 2.5 per cent over a period of up to 10 years.