Growth of Private Sector Funding in Australia
By many accounts, Australia’s private debt market will experience sustained exponential growth. Moving beyond the economic climate marked by Covid-19, substantial increases in private sector funding led to a record $133 billion growth by the end of 2021.
Experts believe the trend will continue and credit the expected interest rate hikes and growing inflation for putting private funding in a good place. Non-bank lenders are keeping watch on the impact higher rates will have on the serviceability of the loans. Borrowing rates have been low, creating comfortable repayment amounts. However, interest rate increases have all but been promised. Once rates increase, the serviceability of loans will likely come into question. This opens the door for private lending even wider than at present.
At the same time, corporate borrowers have maintained their ability to service their loans from private sources and look to be in good overall health.
Finance Options for Small and Medium Size Businesses (SMEs)
The changes in funding options for small and medium-sized businesses (SMEs) have improved circumstances for many small businesses. APRA’s capital requirements have limited banks’ ability to offer finance. And now, private sector funding is bridging that gap.
Aside from capital requirements, central commercial banks have maintained conservatism towards funding SMEs. The course of action allows the non-bank financier sector to make offers to SMEs that were once limited to commercial banks. The interest rate from private funds tends to be better for some SMEs, making the funding offers even more attractive.
Why is Private Debt so Popular?
Given the fact that corporate loans in Australia make up more than $1 trillion and are growing, it points towards the characteristics of private debt, which make it attractive.
- Steady income production
- The short-weighted average life of loans
- The natural liquidity points
- Greater flexibility for borrowers
- A customizable approach
- Leeway that is not available with big banks for self-employed or those with a short credit history
Three Factors that Point to Continued Growth in Private Sector Funding
- Continued market instability will create more opportunities in the private debt market
- The increase of financiers agreeing to lend in the present environment
- Pressures of inflation that could lead to higher interest rates
What to Look for in the Near Future
The following internal and external pressures are likely to impact private sector funding.
- Inflationary pressure on the central banks to raise their interest rates.
- More significant opportunities in the private debt market will likely lead to refinancing, turnaround capital, and growing funding sources.
- An increase in the availability of capital.
- Greater willingness for financiers to offer low-interest lending, which ultimately helps borrowers to get the funding they need.
- Potential impacts from rising costs, supply chain issues, staff shortages, and inflation.
- The ongoing conflict between Ukraine and the Russian military will continue to add an air of unpredictability to the world. Additionally, other significant historical events (Potential entrances into NATO by Sweden and Finland, the retirement of the UK Prime Minister, and other international events) may cause substantial changes to financial forecasts not just in Australia but around the globe.
If you are searching for a private source for funding, Quantum Capital Australia has access to a mass of private funds which are readily available to our clients. Because we reduce the wait time and get your funding to you quickly, you can move forward with your upcoming projects.
The material provided here is for informational use and is not binding financial advice. It should not replace a consultation with a professional financial expert who understands your unique situation.