The securitisation fund will operate through the government buying bonds that are drawn from a pool of small business loans and providing cheaper funding to smaller banks and non-bank lenders through new or existing warehouse facilities. The government will receive interest from these loans on a monthly basis which is where it will make its money and a well placed source said the government hopes superannuation funds will also participate in a similar way. Ultimately the source said the government envisages it will not have to keep investing as the market matures which could take around three to five years. Looking to superannuation funds

Joseph Healy, is the co-founder of SME lender Judo Capital, which is likely to benefit from the fund and said if the government is willing to invest money through the fund, superannuation funds may be willing to invest as well. Loading "Being able to invest into the securitisation fund and access a pools of funds rather than individual funds is a much better way for SMEs to access the superannuation market," he said. Eva Scheerlinck, chief executive of the Australian Institute of Superannuation Trustees, said new investment opportunities are always welcome but it's too early to say what the response will be from super funds. "Super funds have a fiduciary duty to their members to ensure that every investment made is the right one for their portfolio and the investment outlook," she said.

"At the end of the day, the assets that trustees invest in still have to be of investment grade and assessed against a rigorous criteria to ensure members get the best outcomes.” Australian Institute of Superannuation Trustees chief executive Eva Scheerlinck. Credit:Steven Pam Small business ombudsman Kate Carnell helped develop the policy and said the securitisation fund would encourage smaller banks and non bank lenders to lend to small businesses. "For second tier banks the cost of lending is a mix of risk and cost of capital," she said. "Why don't they lend now? The cost of capital is high and the dilemma of lending to small business or SMEs is that the risk is higher. By bringing down the cost of capital you can make the business case for some of these lenders to focus on small business." Loading Replay Replay video Play video Play video

Growth fund The second part of the government's policy is to promote the establishment of a growth fund. The government is consulting with the Australian Prudential Regulatory Authority and the banks over how the fund would work. The fund would provide passive equity investment to small businesses to enable them to grow without taking on additional debt or giving up control of their business and is likely to be modelled on similar funds in the United Kingdom and Canada. Since its establishment in 2011, the United Kingdom’s business growth fund has invested some $2.7 billion in a range of sectors across the economy.

Unlike a traditional private equity investment or a 'Shark Tank' style investment, businesses would not have to give up control or offer a board seat. A similar fund doesn't exist in Australia in part because the amount of capital APRA requires banks to hold for these investments makes it unprofitable for the banks however this treatment is under review. The government's role will be limited to setting up the rules around the funds operation and ensuring reporting and auditing. Mr Healy said he expects there will be strong demand for the growth fund. "A lot of small business require access to equity capital and outside the venture capital community the market doesn't provide that," he said. "This is addressing market failure and that market failure is that a number of small businesses are unable to access funding. We estimate the funding gap is in the order of $80 billion clearly it doesn't fill that gap."

Implementation The government is aiming to finalise legislation to set up the securitisation fund before Christmas. If the legislation receives bipartisan support it can then be passed early next year and the securitisation fund could be operational by mid 2019. The government will host a meeting with APRA and the banks in Canberra in the first week of December and is looking to industry to drive the fund. Shadow Treasurer Chris Bowen is keen for more details. Credit:Alex Ellinghausen