The special financial needs of small business have long been a policy issue in Australia, with the claim often made that capital markets are less than fully responsive to this sector. This paper argues that despite financial deregulation, the small business sector is yet to fully benefit from improved supply of finance. The future reform process should not be jeopardised by precipitate policy changes (such as bank mergers) which could upset the delicate balance of forces currently emerging in the industry. Further, proactive policies are needed to encourage the growth of secondary debt and primary equity capital markets for small business.