Bank of Mum and Dad Also Funding Kids’ Businesses Too

We have  highlighted the fact that Young Home Buyers have been turning to the Bank of Mum and Dad to fund their transaction, on average to the tune of more than $85,000; despite the risks of eroding their parent’s retirement savings.

Now the Australian Small Business and Family Enterprise Ombudsman has released a study into factors impacting small to medium enterprise investment. And the Bank of Mum and Dad figures again; another sign of inter-generational wealth shifting and the two tier “have and have nots”.

Speaking at the Institute of Public Accountants national conference on the Gold Coast, Ombudsman Kate Carnell said barriers to investment included access to capital, red tape and energy prices.

Ms Carnell said removing barriers to investment would give small businesses confidence to grow and boost jobs.

Despite recent claims by bank executives that lending to small firms is booming, Ms Carnell said this wasn’t the case for borrowers who don’t have equity in property.

“Traditional bank loans are backed by real property mortgages and although alternatives are emerging, they are not currently mature and affordable,” she said.

“Young aspiring small business operators are particularly disadvantaged and increasingly rely on their parents to provide seed finance.”

Ms Carnell said this meant the “Bank of Mum and Dad” was often called on to help young entrepreneurs.

“This offers convenience and flexibility, but it puts people’s retirement savings at risk,” she said.

“It also raises social equity issues in that the children of affluent parents have greater opportunities to buy and grow businesses.”

Ms Carnell said a government-backed guarantee scheme could be the answer, similar to the British Business Bank.

The Ombudsman’s study also takes aim at red tape, saying past reduction efforts have largely been “window dressing”.

Ms Carnell said a successful pilot in Parramatta to make compliance requirements seamless should be extended to other areas.

“It was found there were more than 50 pieces of regulation which applied to setting up a hospitality business in Parramatta and that the regulation meant it took up to 18 months to commence trading,” she said.

“Regulation wasn’t removed, but was instead sped up and made invisible. Information provided once was used to automatically complete forms in other areas of bureaucracy.

“This is a smart way of using systems and technology to relieve regulatory burdens on business.”

Author: Martin North

Martin North is the Principal of Digital Finance Analytics

One thought on “Bank of Mum and Dad Also Funding Kids’ Businesses Too”

  1. No SME lending = no jobs = no home loans.
    But all government legislation directs the banks to home loan lending and against SME lending. So until the government changes the rules SME lending will continue to be ignored by the banks. Which bank executives are saying SME lending is booming, unless of course their referring to getting rid of SME lending then thats working above expectations.
    I have had E suite bankers from the big 4 bragging about the amount of SME lending they are “getting off their books and we have instructed customer facing staff to direct new borrowers to other lenders”.
    The housing market will crash due to low wages caused by the lack of finance for SME’s, no other reason. No income = no repayments.

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