Why is SME debt an attractive investment?

by Adrian Davis / January 18, 2023

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 represent $400 billion in debt, growing at 6% a year. There are 170,000 SMEs with revenue of at least $2 million that need money to grow further.

Why is SME debt an attractive investment?

Thriver provides SMEs with syndicated debt facilities from $250,000 to $1 million. Below $250,000, there are bank and non-bank (fintech and private lender) options. Above $1 million, SMEs should be starting to attract the attention of banks.

The space is attractive because of the dynamics of the SMEs that need between $250,000 and $1 million. They typically:

  • Are through the start-up phase and are becoming established businesses
  • Are succeeding in winning new business, often from bigger customers than before
  • Don’t have the cash flow to take on that new business (for example, they need more money to hire additional staff or buy inventory to service that big new contract win).

These SMEs are real businesses. They have growing revenue and they are profitable. They are owned and run by smart, serious, committed businesspeople. These owners understand they need external money to get to access growth opportunities.

They often need more money ($250,000 and up) and have more business complexity than fintechs can assess. But they are still too small for banks to commit time and resources to understanding their needs.

For an investor, these SME debt facilities can provide a high return (often double digits) and the associated risks can be mitigated effectively. Structured as syndicates, investors have open and transparent understanding of who their money is going to and how it is being used. Syndicates and the matching facilities typically have a one-year term with options to renew for a further one or more years.

Banks still use the phrase ‘relationship management’. And that’s what traditional business banking was: an ongoing relationship between the SME and the lender that developed over time. Open and direct conversations about the opportunities and challenges for the business and how the lender could assist whilst still protecting their investment. Thriver takes that traditional approach to our syndicated SME debt facilities. We actively manage our facilities and build relationships 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.

Next time, we’ll look at how SME debt facilities are priced.

by Adrian Davis / January 18, 2023