Better access to equity and tax breaks for private investors who want to support small businesses is a better alternative to bank’s taking more risk, says Australia and New Zealand Banking Group chief executive Mike Smith.
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Mr Smith said the problems for small business accessing capital was not about a bank’s role in providing debt but rather access to equity.
“There is no shortage of debt to support small business. But small business is a higher risk than a residential mortgage and therefore costs are higher,” Mr Smith told a Trans-Tasman Business Circle event in Melbourne on Wednesday .
“It is unreasonable for a bank to take equity risk and receive a debt return. What we don’t have is a deep pool of equity available to small business.”
To make small business attractive to the limited pool of equity available the government should consider incentives such as tax breaks, he said.
He said a scheme recently introduced in the United Kingdom that supports funding for small businesses through government and private funding could be replicated here.
The UK’s Seed Enterprise Investment Scheme offers tax relief to individual investors who buy new shares in small companies in their early stages.
“It’s a really good way of creating private equity and capital funding for small businesses,” he said, adding that changes are needed to the tax system to create incentive for investors.
Mr Smith disagreed when it was suggested to him that small businesses were being shafted at the expense of residential mortgages. He said although some banks heavily relied on the mortgage segment, they had performed well financially.
“There is an argument that perhaps a couple of banks do have a very large mortgage," he said.
“That’s the structure of their business and one of them who delivered results today, which were fantastic, so can you say that is inappropriate? I would say not.”
