The Government needs to take a leadership role in helping to make growth capital more readily available for small to medium sized New Zealand enterprises (SMEs) rather than talking about pouring more money into start ups.
They should follow offshore leads to ensure that our SMEs, which make up a large percentage of all enterprises in New Zealand, can more easily access the necessary capital they need to fund their growth.
It is very hard for many of our good SMEs to access new equity and/or debt to fund and sustain growth because the current market structure is flawed and the options available to those seeking growth capital is too limited. There needs to be a collaborative approach to addressing the issue led by the Government and the New Zealand Superannuation Fund, and including regulators, banks and other funding sources to ensure there is much wider availability of more accessible and affordable growth funding options for our SME’s.
We recently established the CMP Growth Capital Fund aimed at helping SMEs seeking additional debt or equity to fund growth and take advantage of expansion opportunities. We have been overwhelmed by the large number of inquiries from enterprises seeking growth funding, which clearly demonstrates there is a significant demand in the market that is not being met under the current structure.
The Government is putting too much focus on funding start-ups and early stage companies at the expense of the tens of thousands of established SMEs who have proven tracks records, are profitable, and contribute to the New Zealand economy by providing employment and generating tax revenues. They are often a far less risky investment proposition than an early stage start up with no proven record and a much higher likelihood of failure.
While we acknowledge there is a place for Government investment and support in the early stage start up environment, this investment and focus is often to the detriment of the SME sector which in many cases is likely to produce far better investment outcomes and results than an investment in a speculative early stage start up.
A recent report by the Australian Government and Australian Small Business and Family Enterprise Ombudsman highlighted that across the Tasman, 67% of SMEs rely on finance to start, operate and grow their businesses. And the reduction in risk appetite of lenders following the global financial crisis seems to have had a more significant and persistent effect on the cost and availability of finance for small businesses than for larger businesses.
Among the recommendations to come out of the report was the establishment of a Business Growth Fund focused on long term funding and equity solutions for SMEs and a Government Guarantee Scheme where member banks can draw on the guarantee to increase lending to SMEs with a viable business model.
This follows similar models established in the likes of the UK where the British Growth Fund (BGF) was established in 2011 to provide SMEs with long term financial investment. The BGF has a balance sheet of £2.5 billion and to date has invested £1.4 billion across 220 SMEs. And a similar fund has recently been established in Canada with initial funding of C$545m.
The Government, in conjunction with the New Zealand Superannuation Fund and other stakeholders in the market, need to take a leadership role in driving the establishment of a similar fund in New Zealand as well as exploring other options such as Government Guaranteed Debt Funding Schemes to help fund the growth of our SMEs.
The future growth of the New Zealand economy will be driven by SME’s expanding their existing operations and growing offshore markets to increase their revenue footprint and in doing so, generating more off shore earnings for New Zealand.
Large commercial enterprises aren’t born that way – the vast majority of them are spawned from humble beginnings. The potential of New Zealand’s SMEs can only be unlocked with the introduction of appropriate growth capital funding structures and the receipt of more readily accessible funding options.
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