60 per cent equity and 40 per cent debt ( graph 1 ). 2 business debt is dominated by loans from financial institutions, with debt securities playing a relatively minor role. this capital structure is similar to most other comparable advanced economies. the united states, to which we are often compared, is actually an outlier. bank loans are a much smaller share of business funding in the us. 1 / 17 bis central bankers'speeches the primary source of new finance for australian businesses is internal funding ( graph 2 ). that is supplemented by funds raised externally. the primary use of funds is for productive investment, such as commercial buildings, machinery, software and other forms of intellectual property. a non - trivial share, though, is used to pay dividends and to purchase financial assets, or for mergers and acquisitions. 3 2 / 17 bis central bankers'speeches it is well established in the literature that businesses prefer to finance investment using internal funds. raising funds externally is more costly and can involve restrictions being imposed on the managers. internal funding is closely related to business investment. they are similar in size. this is evident in graph 3, in which the dots comparing the level of internal funding ( in a given year ) with the level of business investment ( the following year ) are clustered around the 45 degree line. also, there is a clear positive relationship between internal funding and investment. 4 3 / 17 bis central bankers'speeches in contrast, the relationship between external financing and investment is less clear in the aggregate data. external financing is generally much smaller than investment – that is, the external funding dots in graph 3 tend to be well to the left of the 45 degree line. moreover, there is only a weak positive relationship between businesses ’ external funding and investment. 5 debt funding has moved more closely with mergers and acquisitions activity ( graph 4 ). 6 for instance, in the period leading up to the global financial crisis, debt finance was used by a small number of highly leveraged firms to fund several mergers and acquisitions. 4 / 17 bis central bankers'speeches like the growth of external debt, listed equity raisings have been relatively modest over the past 10 years, with relatively little capital raised through initial public offerings ( ipos ) ( graph 5 ). this followed a period of significant equity raisings during the 2000s, partly driven by a number of privatisations through public floats. 5 / 17 bis central bankers'speeches overall, external finance has become more readily available over recent years. monetary policy,

be able to price risk more accurately ; this may enhance competition as the current lender to any particular business will no longer have an informational advantage over other lenders. it may also reduce the need for lenders to seek additional collateral and personal guarantees for small business lending, particularly for established businesses. indeed, the use of personal guarantees is more widespread in australia than in countries that have well - established comprehensive credit reporting regimes, such as the united kingdom and the united states. for several years, the finance industry has attempted to establish a voluntary comprehensive credit reporting regime in australia. participation has so far been limited. 13 however, several of the major banks have committed to contribute their credit data in coming months. the australian government has announced that it will legislate for a mandatory regime to come into effect mid next year. open banking the introduction of an open banking regime should make it easier for entrepreneurs to share their banking data ( including on transactions accounts ) securely with third - party service providers, such as potential lenders. when assessing credit risks, lenders place considerable weight on evidence of the capacity of small business borrowers to service their debts based on their cash flows. for this reason, making this data available via open banking would reduce the cost of assessing credit risk. a review is currently being conducted with a view to introducing legislation to support an open banking regime. large technology companies technology firms can use the transactional data from their platforms to identify creditworthy borrowers, and provide loans and trade credit to these businesses from their own balance sheets. this could supply small innovative businesses that are active on these online platforms with a new source of finance. amazon and paypal are providing finance to some businesses that use their platforms. for example, amazon identifies businesses with good sales histories and offers them finance on an invitation - only basis. loans are reported to range from us $ 1 000 to us $ 750 000 for terms of up to a year at interest rates between 6 and 14 per cent. repayments are automatically deducted from the proceeds of the borrower ’ s sales. alternative finance platforms alternative finance platforms, including marketplace lending and crowdfunding platforms, use new technologies to connect fundraisers directly with funding sources. the aim is to avoid the costs and delays involved in traditional intermediated finance. while alternative financing platforms are growing rapidly, they are still a very minor source of funding for businesses, including in australia. the largest alternative finance markets are in china, followed by the united states and the united kingdom