Does Australia need a small business bank? Canada has one, Britain financiers are planning one, but the Australian government has rejected the need.

A group of city financiers in London have announced that they will set up the British Enterprise Bank, which will lend exclusively to small and medium-sized businesses. In Canada, the state-run Business Development Bank has offered loans to entrepreneurs for more than 65 years.

But despite frequent complaints by Australian small businesses about the lack of finance available from domestic banks, the federal government will not follow suit. Nick Sherry, the new small business minister, said: ”The government’s primary role is to get the broader economic settings right — as we have done in steering Australia through the global recession in better shape than virtually any other advanced economy.

“We have always recognised the economic importance of small business and supported it through stimulus and other measures during the worst of the global recession. The government believes lending decisions are best left to the financial sector and is committed to continue working with the banks to maintain credit flows to the small business sector.”

Sherry added that small firms will also benefit from an immediate $5,000 tax deduction and will get an early start to the reduced company tax rate of 29% in 2012-13 — one year earlier than other companies. “The Gillard government is focusing on encouraging competition in the banking sector to improve access to small business finance,” he said.

The federal opposition is also unconvinced by the need for a small business bank, but says that Labor needs to do more to acknowledge the problem of start-up finance.

“Labor needs to recognise that this is a genuine issue,” said Bruce Billson, shadow small business minister. “They’ve tried to swat it away and say it is just a perception, which small businesses find offensive.”

“They need to come up with solutions, as the Coalition has done. We’ve looked at the models available and we’ve spoken to the banks.”

“The banks have said that they want to lend to small businesses but they are more likely to lend when houses are used as security. We would work with regulatory authorities so that if funds are secured by personal assets, that’s included in the risk rating. That will make it more attractive to banks. Banks have a desire to lend to small businesses and we want to remove that impediment.”

Steven Münchenberg, chief executive of the Australian Bankers’ Association, says he’d welcome any new market entrant, but adds: “Your business needs to make a profit, so does a bank.”

“When you approach a bank for a loan, you are asking the bank to go into business with you. You are asking the bank to consider your business plan, agree with your strategy, approve your expenditure and accept some of the risk that the business may not succeed.

“Banks are in the business of supporting sound and viable financial decisions, therefore every request is considered on its own merits and priced accordingly.”

*This article originally appeared at StartUpSmart (Crikey‘s new sister site)