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W hat th e private cr ed it boom
What the private credit boom

means for investors
means for investor s

Roger Montgomery, Founder and Chairman

Roger identifies what investors should look for when investing in private credit. Private credit
funds now provide direct access to an income stream and it’s a growing asset class.

Did you know 97 per cent of all businesses in Australia are small If you ask the Australian Banking Association, they’ll tell you that
and medium enterprises (SMEs)? And did you know the financial in 2019 more than 80 per cent of SME lending applications were
gap between what SMEs have and what they would like to spend accepted by banks. According to the ABA, most SMEs that seek
and invest to grow is approaching $100 billion? More on that in a access to finance also report they receive it.
moment.
According to that same body, in the three months to August 2021,
Hands: they’re the telltale sign of hard work. From bakers to new lending to small businesses jumped 26 per cent from the same
builders, tilers to teachers, and from jackaroos to jewellers, the lines, period in 2020 to $10 billion. Meanwhile, lending to medium
scars and colour of our nation’s hands tell the story of hard work. businesses in the three months to August 2021, jumped 49 per cent
And it’s work that has supported families, founded partnerships from the prior corresponding period to $19.3 billion.
and built a nation. Our land’s hostile climate, rugged landscape Whether hard-working SMEs are being properly and fairly served
and vast distances ensured it would only yield to hard work. Those depends on whom you ask.
hard-working hands are the account of our modern history and the
source of our global status. Growing funding gap

There are investment managers backing and fueling hard-working According to a recent report released by fintech Judo Bank, the
Australian SMEs but they’re in an asset class you may not have funding gap – which is the amount between what SMEs have and
previously had access to. Formerly the exclusive preserve of family what they would like to spend – continues to grow, revealing credit
offices, high net worth and ultra-high net worth investors, private and finance are not available to small businesses at the rate that
credit is fast becoming an important inclusion in the portfolios of they would like.
almost all Australians who want to support and back hard work. According to Judo Bank’s 2021 SME Insights Report, carried out by
Previously dominated by big banks East and Partners after surveying 1750 SMEs, the funding gap for
SMEs with turnover between $1 million and $20 million in 2021,
Private credit is one way businesses raise capital. Access to finance widened by $4.6 billion, from 2019, to $94.3 billion - an increase
is essential for SME growth and unlike private equity, where of 5.1 per cent. The annual increase in the funding gap prompted
investors contribute funds in exchange for a shareholding in the one Judo Bank spokesperson to say, “banks have retreated, leaving
business, with private credit, investors provide loans and receive SMEs out in the cold”.
interest payments in return.
It certainly suggests there’s a limit to the big banks’ capacity and
It’s an activity said to have been conducted in Mesopotamia, five appetite to provide financing solutions, covering hundreds of
thousand years ago. And up until recently, it was dominated by the customers, tailored to SMEs’ individual needs.
big four banks.

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www.montinvest.com
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