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Currently, SMEs can access debt capital from banks in the form of loans, generally for up to three years if they own real estate – normally the family home – and are willing to use it as security. SMEs can also access short term, low value, and higher-cost capital from alternative lenders where the lender has access to the transaction history on business performance and has security over assets such as plant, equipment, stock and debtors.

An alternative is to access capital in the form of equity by issuing shares to investors. SMEs can seek capital through crowdsource funding or private shareholder investment. This requires an SME to issue unlisted shares, which gives investors an interest in the business. For many SME business owners it is difficult to cede partial or full control to external parties.

This market failure, resulting in a limited supply of patient capital for growth, has been experienced worldwide. We have undertaken this inquiry to explore how jurisdictions similar to Australia addressed this market failure to provide affordable capital to SMEs. The recommendations in this report outline initiatives to increase the supply of capital and inform and prepare SMEs to seek capital.

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