The recommendation comes via the IPA’s Australian Small Business White Paper, launched in Parliament House on Wednesday last week.
IPA chief executive officer Andrew Conway noted that Australia is one of only a few developed-world countries without such a scheme in place.
“In our view, a loan guarantee scheme would help increase the availability of much-needed, affordable loan finance to the small business sector,” he said.
Research conducted by the IPA Deakin University SME Research Partnership highlighted that, on average, 28,000 Australian businesses per annum are faced with a binding finance constraint, with a further 118,000 facing some issues when attempting to access finance.
“A limited State-backed guarantee would encourage banks and other commercial lenders to increase loan finance available to small business at affordable rates".
"Access to responsible and affordable finance will help many small businesses reinvest in their businesses and help create new ideas, new capacity and new jobs”, Mr Conway added.
Although the idea of a similar scheme was contemplated by the opposition in its 2015 federal budget response, Mr Conway believes the immediate establishment of the scheme is required.
“We want Australia to move forward on this initiative now,” he urged.
In addition to the proposal of a finance guarantee, the White Paper also made several other key recommendations, including calling for the federal government to pilot a general SME guarantee scheme exclusively for capital investment projects which includes a maximum loan of $100,000, a maximum term of five years, and an interest premium of 3.5 percentage points over the retail bank loan rate, alongside a guarantee level of 65 per cent.
The paper also called for an exporting SME guarantee scheme for international market development projects, including a $200,000 maximum loan over a maximum of 10 years, a 75 per cent guarantee level and an interest premium of 2.5 percentage points over the retail bank loan rate.