Investment pools are beginning to grow in Australia, offering businesses a viable alternative to traditional bank loans and bridging what’s been said to be a “funding gap” for SMEs in Australia. In October, Melbourne-based entrepreneurs Aris Allegos and Andrew Watt launched Moula, an online funding platform for small businesses to access critical short-term capital of up to $20,000. PayPal also launched Working Capital in Australia at about the same time, allowing SMEs to borrow up to 8 percent of their yearly PayPal transactions. The latest to enter this space is ThinCats Australia, an online lending platform that allows wholesale investors to lend up to $2 million directly to SME borrowers.
ThinCats originated in the UK four years ago and has since completed more than $160 million worth of secured business loans. ThinCats UK will supply the software, as well as training and additional support to help the Australian team operate locally.
Scott Strain, Director of Trade for UK Trade & Investment Australia and New Zealand, said, “Investment in FinTech is growing faster in the UK and Ireland than anywhere else in the world, and Australia’s emerging FinTech scene can greatly benefit from British expertise.”
Sunil Aranha, CEO of ThinCats Australia who carried over 25 years of experience in international and local SME banking with Citibank, Commonwealth Bank of Australia and the Export Finance Investment Corporation, said ThinCats is a more cost-effective alternative for SMEs who borrow about $73 billion a year from banks to finance their operations.
“The vast majority of these businesses are hindered from growth by not having access to prompt and cost-effective funding to capture business opportunities as they arise, which is potentially available from Australia’s 400,000 high net worth investors and their super funds holding around $1 trillion in investable assets looking for better returns,” he said.
The global market for peer-to-peer lending is reportedly worth $6 billion and doubling in value every year. Although the concept is slowly gaining more understanding in Australia, the big four banks of Australia still dominate the financial services market, generating an estimated $29 billion+ dollars annually.
After a successful run in the UK, ThinCats believes it can eliminate many of the price inefficiencies present in Australia’s bank lending practices such as high branch and staff costs. A technology solution cuts out many of those inefficiencies, and delivers competitive interest rates to businesses.
Lenders can make their own investment decision after reviewing and assessing loan submissions, and set the amount they wish to invest and the interest rate they wish to receive – typically between 8 and 16 percent per annum.
Investors can also spread their risk by lending to multiple businesses at a price determined by the market, providing them with access to a fixed interest asset class which has largely been the domain of big banks.
SMEs are able to apply for loans of between $50,000 and $2 million, secured in most cases against its business assets and personal guarantees. The loan is funded by the lowest bidders who get the interest rate they requested and the borrower gets the weighted average interest rate, determined by the marketplace.
The ThinCats platform then manages individual loans directly between the lender and the borrower, collecting the monthly repayments from borrowers and distributing them to lenders.
This funding option would be best suited to high-growth, revenue-generating businesses who need access to capital, but don’t want to give up equity.
ThinCats Australia Deal Process
- SMEs apply for loans of up to $2 million through a “sponsor” (licensed finance broker), who vets applications and prepares a credit submission on their behalf.
- ThinCats Australia accepts applications and lists eligible loans for auction on its platform, with supporting documentation.
- Registered lenders can download the detailed information pack and ask questions about the business before deciding to make a bid for a portion of a loan. The auction usually takes place over several days.
- Each loan is made up of a number of individual investors lending directly to the borrower and managing their risk by spreading their investment over a number of loans.
- On successful completion of the auction, ThinCats Australia prepares the appropriate security documentation and arranges to transfers funds to the borrower.
- The borrower repays principal and interest on a monthly basis so that lenders get a regular income at a fixed interest rate
- The lender can monitor their investments online via their personal dashboard.
- The sponsor gets involved in helping to resolve any problems faced by the borrower in repaying the loan and in the event of a default the lenders decide upon the action to be taken to recover the funds owed.
ThinCats Australia also proposes to operate a secondary market which will allow lenders to sell loans if they need access to their cash before the loan has been repaid.