Risk: Return on Capital

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.

Borrowing by SMEs represents $400 billion in debt that is growing at 6% a year. There are 170,000 SMEs who have at least $2 million in revenue and need money to grow further. Using investment syndicates, Thriver provides those SMEs with innovative, well-thought-out solutions with quick turnaround for funding needs of $250,000 to $1 million.

Last time, we talked about our investors wanting return OF their capital, ie, getting their money back. This week, it’s about making them money through return ON capital.

A Thriver facility comprises fees associated with the establishment and operation of that facility and an interest element on the funding provided. How the facility operates varies depending on the structure used for funding. But in broad terms, there will be those components of fees and interest.

The return to investors is driven by the interest charged under a facility, which we can call Y%. The return to investors is X%, being Y% less the Net Interest Margin that is Thriver’s share of the interest charged.

Many of our investors look at a prospective syndicate investment in light of four factors: pricing; collateral; tenor and size. Tenor is the length of the investment. Size is how big is the investment. Collateral is the value of any security. Pricing is the investor’s intended return or X%. Investors have different views as to the mix of those four factors that makes an investment suitable for them. In marketing each syndicate, Thriver outlines the four factors, including pricing, giving investors the ability to select investments that meet their requirements.

We price each facility to reflect the specific transaction. Typically, X% – the intended return for investors – falls between 8-14%.

The subject of our next newsletter is the importance of relationships. Look forward to being back in your inbox then.