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Tuesday, 31 May 1994
Page: 906

Senator JONES —Mr President, my question is directed to the Minister for Industry, Science and Technology. I note that the government has implemented its promised $30 million capital injection into the Commonwealth Development Bank to increase the bank's capacity to lend to small and medium sized enterprises. Does the minister believe that this injection will bridge the gap between the demands of small businesses for capital and the availability of finance from traditional sources?

Senator COOK —The government recognises that access to finance by small and medium sized companies in Australia is an essential precondition for those companies to grow and develop. That has been a theme of a lot of our economic statements and is a key feature of the industry section of the white paper that was released in the last sitting period.

  Yesterday the Treasurer announced an injection of $30 million into the Commonwealth Development Bank. This completes the third step of the announcements we made in the statement Investing in the Nation. The other two steps were continuing a subsidy of $20 million to support the Commonwealth Development Bank's financing activities and expanding the CDB's charter so that it is not defined as a supplementary lending authority.

  The capital injection will expand the Commonwealth Development Bank's lending capability even further. Importantly, it will become a cash flow lender—that is, it will place importance on the cash flow of companies rather than on the bricks and mortar securities they might offer.

  In the white paper we announced an additional $2 million to promote the Commonwealth Development Bank. There is considerable evidence that a lot of small to medium sized companies do not effectively access the Commonwealth Development Bank. We want to draw its expertise to their attention and indicate that it is a lender further out on the risk spectrum than the major lending banks and that it has a very good prudential record as well.

  Improvements to the Commonwealth Development Bank are, of course, part of the wider strategy by the government of making finance available to small to medium sized companies. Australia has a well-developed equity market for large companies; small businesses are not as well served. Small businesses, particularly in the early stages of growth, need to use new technology to increase their growth and they constantly point to problems revealed in all the surveys about raising funds for equity investment.

  To encourage the provision of long-term equity capital to small Australian businesses, the government has reduced the concessional tax rate for pooled development fund profits derived from investment in small Australian businesses. The restrictions under which the pooled development funds operate have been eased to make them more user friendly for small companies in Australia. To assist small companies find equity finance, the government will fund pilot programs to match small firms requiring equity finance with their potential investors—the so-called business angels approach.

  One of the major casualties of the rapid changes in the finance sector and the business sector has been communications between lenders and borrowers. The government has taken active steps to improve relations between lenders and borrowers with the goal of improving small business access to debt finance. The government will spend $1.2 million to establish a model of business best practice to help banks to lend on cash flow principles based on an improved understanding of business prospects. The government will provide training material for accountants, business advisers and financiers to help them understand the special needs of small business.

  Another area of particular problems in access to both debt and equity finance concerns our emerging exporters. We have said at some length what we are doing to expand our overseas network for market intelligence which will be available to small to medium size companies in Australia, and based on the McKinsey study of emerging exporters and the forthcoming LEK study of service companies—

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