A Short Read About Debt for SMEs

by Adrian Davis / December 6, 2022

Welcome to Thriver’s short reads about investing in SME debt and how the SME debt market works. You’ll read them faster than you finish your cup of coffee.

Small business and family enterprises or SMEs are a big deal in Australia.

ABS stats from June 2022 show that Small and Medium Sized businesses (SMEs) up to 200 employees make up 99.8% of businesses in Australia.

SMEs who have achieved at least $2million in revenue present a market opportunity of 170,000 businesses. At that size, they are often presented with growth opportunities and need money to seize these opportunities. We support those businesses by providing debt facilities between $250,000 and $1 million.

We fund each deal through syndicates of investors who see the opportunity in SME debt. Thriver actively manages its SME debt facilities to ensure investors:

  • Get their money back
  • Generate a high return for their investment
  • Mitigate their risks.

Of course, no investment is risk free and Thriver syndicates are only available to sophisticated and other wholesale investors.

So, let’s talk more about the size of the SME debt market.

RBA data from September 2022 showed SME lending of more than $400 billion, with lending up 6% year on year. Each year, the RBA convenes a Small Business Finance Advisory panel to better understand small businesses’ challenges. In 2022, panelists reported that accessing suitable amounts of finance through traditional lenders remained challenging, with difficult approval processes and substantial collateral requirements.

The panelists also noted that price was not the impediment. It was availability of funds.
For SMEs, opportunities to grow can be right in front of them. They need money to take them on. They need to hire more staff or buy additional machinery. To buy inventory or source raw materials. If they don’t have the money, they just can’t do it.

The RBA further noted that small businesses, “often face a number of other non-price barriers to accessing financing, arising from their smaller scale, lack of business history (at least in the earlier phases of their business) and less diversified nature. The approval process is often difficult and can be relatively costly for small businesses that do not have access to the finance teams of larger businesses. As a result, some small businesses on the panel reported that they had given up on seeking finance from banks.”

A summary of the Australian SME debt market:

  • A large market growing by 6% a year
  • Businesses with opportunities to grow being under served by traditional lenders
  • Caught up in unwieldy and slow-moving processes
  • Availability of money is more important than the cost of that money.

Next time, we’ll look more closely at why SMEs have difficulty accessing money from traditional lenders.

by Adrian Davis / December 6, 2022