In the alternative lending space, technology has streamlined the process through which small and medium businesses gain access to funding. In Australia, one company that is helping change the lending landscape is ThinCats — the name is a playful twist on the popular perception that big lenders and big corporate clients are “fat cats” enjoying easy access to money.
PYMNTS spoke at length with the company’s CEO, Sunil Aranha — who noted that the ThinCats name also serves to illustrate his firm’s “lean structure, cost base and processes, along with competitiveness” — to get a sense of the alternative lending market down under and what SMEs need in order to thrive. Australia’s SMEs make up 60 percent of the nation’s workforce across 2 million enterprises, according to the Australian Chamber of Commerce and Industry.
The growth in P2P (peer-to-peer) and P2B (peer-to-business) markets can be tied to what Aranha termed the “market gap” that has been created by the larger Australian banks. “In the small to medium-sized marketplace,” the executive said, “about 91 percent of the A$73 billion in lending to the 2.1 million small businesses in Australia is controlled by the ‘Big 4’ Australian banks,” which include Westpac, National Australia Bank, Commonwealth Bank and Australia and New Zealand Banking Group. And interactions between those smaller enterprises and the big banks can be somewhat formulaic. Aranha said the loans typically require collateralization and have an LTV cap tied to real estate.
“It’s estimated that small businesses require an additional A$22 billion over and above what they get from the banks in order to finance their growth,” Aranha continued, “but they do not have the real estate security to offer.” That leads to a funding gap, one that can be bridged in Australia by alternative financing.
In a world where lending platforms and online brokers can offer any number of options for lending criteria, from the value of real estate to inventory held to the pensions owned by executives, ThinCats seeks a differentiated approach through a number of factors — chiefly as a platform bringing lenders and borrowers together. Deals are made on a “bespoke” basis rather than employing the algorithm-driven models of larger lenders — and on a platform system such as the one employed by ThinCats, investors can in fact come in on a fractional basis.
The lenders are typically high net worth individuals or funds, with loans offered through those lenders ranging from as little as A$50,000 to as much as A$2 million. Aranha said other alternative lenders in Australia typically offer up to A$100,000 and rather than operating solely as a fee-based platform, do in fact operate their own balance sheets (with some financial risks implied) or in tandem with warehouse financing. Loan terms are usually stretched out a bit as well, comparatively speaking, as ThinCats terms are set at between two to five years, while peers will often set terms of only several months.
A few country-specific factors have set the stage for growth among alternative lending platforms in Australia, according to Aranha. For starters, there is national regulation of the industry, via the Australian Security and Investment Commission. All lending platforms must operate with a license in place from the Australian Securities and Investments Commission. And, noted the executive, the Australian market has an “orderly process for debt collection and security realization.” That, in tandem with collateral guarantees, have helped establish low default rates, where accounts past due more than 90 days are “very low and stable,” with a range of about 1.6 percent to 2.2 percent over the past decade.
Looking ahead, Aranha pointed to alternative lending embracing another form of alternative payments. Virtual currency is a “definite possibility in the future,” according to Aranha.