The financial system's support of the SME sector will be "critical in supporting Australia's productive capacity and growth", the bank's submission stated.
"Both debt and equity finance can provide an appropriate source of working or growth capital for SMEs."
While the evidence suggests that debt finance is "readily available" to the SME sector, there is "likely to remain a subset of SMEs where the provision of debt financing falls outside appropriate risk management or responsible lending criteria", Westpac said.
In such cases, there might be a "more appropriate" source of finance, particularly for innovative and start-up SMEs, which are generally high-risk propositions for lenders, the submission said.
"Greater capital from alternative sources could also improve the creditworthiness of SME customers, increasing their prospects of obtaining debt finance," it said.
The bank recommended that the inquiry establish a taskforce, comprising government and industry representatives, to examine alternative financing for Australian SMEs.
The submission listed private equity, start-up and growth funds, venture capital and emerging trends among the financing options for the taskforce to consider, as well as "current barriers to market development and potential opportunities to enhance the financing mix available to SMEs".
Westpac also recommended "opportunities for other forms of non-financial support to be increased, including providing SMEs education to increase awareness of the range of financing options available and improved expertise to apply for external (debt and equity) finance".
