News - Capspace

Adviser Voice: Private credit to grow share of business lending, fund transparency to become more important

Written by Capspace | Nov 5, 2024 9:27:58 PM

Growth in business lending has accelerated from year-ago levels despite higher interest rates, with still favourable funding conditions encouraging businesses to borrow across Australia and stimulating the growth of the private credit sector, according to Tim Keith, Managing Director of private credit fund manager Capspace.

Data from the Reserve Bank of Australia (RBA) released on Friday reveal growth in business credit of 7.5% over the year to September 30, 2024, up from 6.8% a year earlier, easily outstripping growth in home lending of 5.1% (up from 4.2% a year earlier) and personal credit growth of 2.4%.

The RBA recently estimated the private credit market in Australia is worth around $40 billion in outstanding debt, or around 2½ per cent of total business debt, though that could grow to 5% in 2025, using the same RBA analysis, according to Mr Keith.

“I think private credit could account for up to 5% of overall business lending in Australia by the end of next year,” Mr Keith said. “Still, the industry is far bigger in the US where private lending accounts for a significant portion of business lending. Looking ahead, if private credit lenders can obtain deeper funding pools and a bigger portion of Australian investors’ portfolios, then growth could accelerate as banks will not be able to match the speed and flexibility of private lenders,” Mr Keith said.

According to Mr Keith, private business loans offer some advantages over bank loans for small and medium sized businesses (SMEs). “Lending from their funds’ capital, private credit managers can act much more quickly than banks and they are far more flexible in the businesses to whom they lend. By comparison, banks move far more slowly and can restrict the capital they allocate to SMEs versus other market segments such as home loans,” Mr Keith said.


Read the full Adviser Voice article for further insights.

 

Other articles of interest:

- Adviser Voice: 'Equity like' returns on private credit with investors drawn by stable income

- The West Australian: Why private credit is emerging as an option for those shunning term deposits and property market

- SMSF Adviser: Leaving room in SMSF portfolios for high yielding debt investments