Business credit options – More firepower than ever

Is it finally time for businesses to have their day in the sun? After seemingly many years of banks and lenders chasing residential lending (home loans) we have seen more evidence of the renewed focus on businesses.

In August last year, we published an article on the rise (from a low base) in private credit aimed primarily at businesses.

Through the first months of this year, we also saw improved support for business lending from the traditional banks being a positive for those with plans to grow and invest.

Further evidence of additional options from private credit funds has appeared in the last few weeks. HMC Capital’s acquisition of real-estate specialist Payton Capital, followed by Regal Partners' announcement of the acquisition of Melbourne-based agribusiness and real-estate lender Merricks, shows that more corporate activity is building, which is generating interest in the sector and can only help businesses seeking credit from this area.

Recently investment firm, Tanarra, also flagged fundraising for a new private credit fund targeting investment-grade corporates.

Investors continue to see new opportunities in the local private credit market, which while growing, is still a fraction of the deeper and more developed market in the USA.

So, what has been driving this new-found support in private credit? It turns out it is quite simple. Investors (especially from the huge Australian superannuation industry) are looking for investments that yield a healthy rate of return and have a point of difference from investing in equities. Private credit charges a margin premium over and above credit from more traditional sources such as banks, which provides a good yield and, as a benefit to investors, comes with security supporting the repayment of the loan. Given the current uncertainty regarding our economic conditions, it is no surprise to see investment in this area gaining support.

The evolution of private credit has produced scores of new options for businesses seeking loans. While still small in Australia compared to traditional banks, we estimate the value of funds currently deployed here now exceeds $200b. Historically, many private credit funds focussed only on real estate, but many more are now targeting other sectors such as infrastructure, manufacturing, technology, and agribusiness. Some target asset types such as plant and equipment, receivables or stock/inventory.

Which private credit fund do businesses approach when seeking funding for that next acquisition or expansion?

Often the challenge is finding out which fund has the right appetite and willingness to support your plans. While some funds publish their go/no-go areas and lending parameters, others are flexible to consider various opportunities. Often it takes deeper discussions to find a match between a credit fund and a business that needs finance.

Quite regularly we run a process to canvas all the credit funds that are likely to be receptive to an opportunity.

Outside of the relationships with the traditional lenders (Australian based ADI’s and international banks), BDO’s Debt Advisory team has relationships with over 50 funds across the following categories:

sector agnostic funds
real-estate focussed funds
agribusiness focussed funds
working capital specialist credit funds
asset-backed focussed credit funds.

We can help you navigate the most suitable approach to secure the finance for your plans. If you are looking for finance, please contact us.