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As the credit market tightens for small business, agile alternatives can outflank tick-a-box banks, says one lender.
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Non-bank lending primed to come of age
05 July 2022
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13 minute read
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Non-bank lending accounts for just one in 10 transactions in Australia but it stands to benefit from the credit squeeze and will eventually reach the level of the US and UK, said the managing director of Assetline Capital.
Speaking on the latest Accountants Daily podcast, Paul Munt said almost 50 per cent of loan transactions involved non-bank lenders in those mature markets, but Australian alternatives such as Assetline Capital were poised to gain ground.
The withdrawal of government support packages and the resumption of ATO debt collecting meant there would be fewer options for small businesses and that played to the strength of more agile, focused operators.
“Our research shows is that one in six SMEs are looking for more finance, and one in five are struggling with changes to their financials through the COVID period,” Mr Munt said.
“So off the back of the interest rates and the inflationary pressure and supply chains, people are needing a solution and generally pretty quick – they come to us after they’ve seen the majors.
“In our market, one in 10 transactions is written through a non-bank lender but if you look abroad to the US and the UK market that’s closer to one in two transactions.
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“That’s a more mature market. But it also shows the ability that those banks and lenders have brought to the fore, which comes back to our proof points of speed, agility and a decision that makes sense. It’s not a tick-box type of lender that the banks have been forced to become.”
He said Sydney-based Assetline Capital had lent $1.8 billion over 10 years for construction and development, bridging, short-term finance and longer 30-year terms.
Assetline Capital worked with sibling company AltX, which offers mortgage-backed investments, as one source of capital and prided itself on “tailor-made” loans and rapid response.
Mr Munt said there would be plenty of demand from small businesses restructuring after the pandemic, and many of them would turn to non-bank lenders.
“The support packages are no longer there. There has been a lot of talk about zombie corporations and so forth and I don’t think we’ve seen that,” Mr Munt said.
“But there’s also the ATO who are becoming a lot more active in the market today and I think that’s going to be a real challenge. The ATO has potentially been a lender in the past, that won’t be something that will continue into the future.
“People are starting to have to address that now and it’s becoming a real challenge, and certainly one that we’ve helped out with in the past, and we’ll continue to do so in the future.”
When it comes to the flip side of non-banking lending – mortgage-backed investments – the chief executive of AltX, Nick Raphaely, said the asset class was now accepted much more widely.
“When we started bringing investors into deals in 2013, 14, 15 the first discussion was, what exactly do you guys do? How does non-bank lending work? How does private real estate debt work?” he said.
“We were almost the pioneers of the space back then.
“Today when we talk to investors it’s much more widely known. So definitely there’s been a maturity of the investment class which has, I think, been to our benefit. Now the question is, why pick us versus anybody else? Which I think are really the signs of a growing and maturing market.”
He said high-net-worth individuals and groups had been first through the door, but more conservative, risk-averse investors were now following.
“Then eventually more investors follow, then the retail investors follow, and ultimately the biggest cheques come from the pension funds and institutions that come at the end,” Mr Raphaely said.
“So when you start to see that happening, you know that investment class has come of age.”
Assetline Capital and AltX were principal partners for the recent Accountants Daily Finance Day.
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