The Government has announced a new fund to support small-to-medium enterprises under Budget 2022 – but the “devil is in the detail” according to some members of the business community.
The Business Growth fund will set aside $100 million under Budget 2022’s initiatives to “drive economic security, innovation, and low-emissions growth”.
“The Government is committed to improving SME’s access to finance, and to establishing a Business Growth Fund. The Budget has set aside $100 million over the coming year for Crown investment as a minority shareholder in a Business Growth Fund, alongside private banks,” says Stuart Nash, Minister of Economic Development.
Nash adds that the fund, modelled after established ones in the UK, Ireland, Canada and Australia, will help fill the capital market gap where capital growth for small to medium enterprises is unavailable.
The fund will be privately operated and independently managed as the Crown will be working alongside retail banks, with the Crown holding a minority in the fund.
He says the fund will be different to traditional private equity funds, with the Business Growth Fund having “more modest return expectations and no hard exit deadlines”.
Nash adds that this will help businesses set growth targets and “identify the most appropriate time and path to exit”.
For retail business The Sleep Store owner Louise Tanguay says the Government’s announcement is good news for SME’s.
“I look forward to learning more about the fund, but it sounds like it could be a very helpful alternative to bank debt,” she says.
“It’s fantastic this is targeted at growing SME’s who don’t want to take on investors that result in the loss of control of their business,” Tanguay adds.
Tanguay says that the fund will help finance her company in terms of expansion as their manufacturing volumes are growing rapidly while their logistics and conversion cycle are much slower.
Roy Thompson, Managing Director at New Ground Capital, says SME is an area of the business sector that does need this kind of support.
“SME’s often struggle to find partnership type equity that wants to work with them to help them grow. So, for those businesses who do want to grow and who don’t want to borrow more money on the family home, then being able to access equity capital like this can be tremendously helpful.
“It’s important to note that this is very difficult to do safely. It’s relatively easy to invest money into SME’s but it’s altogether very difficult to get the money out and not lose it along the way. The devil is in the detail for both the government and for the SME’s themselves in terms of how the fund is structured as to whether it can be successful or not. But the examples overseas, particularly in the UK and in Canada show that it can be done very well and it can help generate a lot of growth for the businesses concerned and economic growth overall.”
BusinessNZ Chief Executive Kirk Hope says the $100 million set aside for small businesses is “excellent”, however “it all depends on the how”.
Greg Harford, CEO of RetailNZ agrees, saying that “there could be new opportunities” from the Business Growth Fund for SME’s. “But we need to see the details,” he says
Leeann Watson, Chief Executive of the Canterbury Employers’ Chamber of Commerce commends the fund saying it “will support small and medium-sized businesses to access funding to accelerate their development”.
However, Watson says that it is disappointing that the Budget fails to invest in initiatives that will facilitate economic growth in the long-term.
“Businesses will still struggle to find skilled staff, the cost of living will remain at unsustainable levels and business costs will continue to remain at crippling levels for the foreseeable future,” she says.
“Budget 2022 contains a handful of initiatives that appear to be short-term fixes, but it is anything but visionary.”
Deloitte NZ CEO Mike Horne says the overall economic outlook is “cautiously positive” but there are still concerns around inflation and interest rates and the impact of the borders being reopened.
“It is finely balanced, as should that economic projection not play out as projected then the ability to face off to future shocks and deliver the desired reform and investment is significantly challenged.
“It was good to see the Government provide some clarity on its thinking around the future for a successful and prosperous Aotearoa with Budget 2022 highlighting major investments in health, climate and infrastructure as being the key levers for doing so.”