News & Analysis

Challenger bank Judo says it will lend $1 billion to SMEs by the end of 2019

- July 30, 2019 3 MIN READ

 

  • Judo Bank just smashed records for the largest individual private funding round by an Australian startup

  • The $400 million includes international funds from Bain Capital

  • The bank is focused on lending to SMEs and was granted its full banking license in April

  • Judo is on track to lend $1 billion to small business by Christmas

Judo Bank, a new challenger bank targeting Australia’s small-to-medium (SME) business sector, has set a new record for series A funding round after doubling its target in a A$400 million equity raise.

The latest round follows on from an initial $140 million raised last year as the Melbourne-based challenger bank sought to emulate the success of UK emerging brands such as Aldermore, Shawbrook, and OakNorth.

Judo was co-founded by banking veteran David Hornery, a former NAB executive GM of the corporate, property, and agribusiness divisions, among others. Prior to that he was ANZ’s Asia CEO and Macquarie Bank’s global head of capital markets.

His co-founders are Joseph Healy, another 30-year banker whose CV includes NAB, ANZ, CIBC World Markets, Citibank and Lloyds, and fellow international banker Chris Baylis.

Judo’s investors include OPTrust, the Abu Dhabi Capital Group, Ironbridge and SPF Investment Management, with new  institutional investors including Bain Capital Credit and Tikehau Capital taking part in the latest round.

Hornery told Startup Daily that the split between existing and new investors was roughly 50/50, but he was “underwhelmed” by the lack of participation from local institutional funds, with most of the new investment from offshore.

“It’s a bit surprising given that this is an Australian business aimed at lending to small Australian businesses,” he said.

The $400 million raise is the largest individual private funding round by an Australian startup, smashing the 2014 record of $266 million set by Campaign Monitor. The business also established a $350 million debt facility through Credit Suisse late last year and then in April, an additional $100 million debt facility via Goldman Sachs.

“The strength of this latest funding round clearly demonstrates the investment community’s understanding of and support for Judo Bank’s truly relationship-focused offering to small and medium sized businesses – a proposition that has been materially lacking in the market for many years,” Hornery said.

“When combined with the wholesale debt lines secured from Credit Suisse and Goldman Sachs, and the strength of our recently launched deposit business, it adds further and substantial depth to Judo Bank’s provision of funding to Australia’s small- and medium-sized businesses.”

The bank now has 140 staff and offices in Sydney and Brisbane alongside its Melbourne HQ, with Horney expecting further expansion over the next six months.

 

Small business demand is high

The co-CEO said there was so much pent-up demand from SME that the bank, which only received its authorised deposit-taking (ADI) approval from the regulator, APRA, in April, is on track to lend $1 billion to small business by Christmas 2019.

Judo’s average loan currently sits at around $1.5 million, with the bank willing to lend up to $10 million.

Hornery said Judo “is quite capable of matching the rates of the major banks” on loans.

The bank provides flexible business loans, lines of credit, equipment loans, finance lease and home loans to business customers.

Hornery, said his bank had set out to transform SME lending in Australia and take it back to the relationship-based style the major bank operated under more than a decade ago.

“There has been a real level of frustration of the cost-out mechanism and industrialisation of the lending process by the major banks,” he said.

“It goes back to building a relationship. Judo Bank does what it says on the tin with a banker who has the time, skills and intent to understand a small business – one of the things that doesn’t happen now in the cookie cutter approach.”

Hornery was at pains to say that unlike others new banks, Judo is “not fintech or a neo bank”, defined by their digital-first approach. His bank is all about human interactions and an holistic approach.

“We have cutting-edge tech, just for small business, but we don’t define ourselves by that. It’s about building an understanding of small business owners: what they aspire to, worry about and where they want to take the business,” he said.

The co-CEO says that includes addressing one of the biggest complaints small business owners have: churn with their bank’s relationship manager.

With the major banks currently controlling around 85% of the currently small business lending market, and with other new lending options, such as Prospa, emerging for the sector, Hornery sees huge potential.

“What’s very clear is that we’ve been a bank for a few months, but the resonance with the small business community is huge,” he said.

“The SME sector has been poorly serviced for a long time now. What we want do do at Judo is set a new high water mark for small businesses in financial services.”

 

 

 

 

 

 

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