UK-based peer-to-peer business lender ‘ThinCats’ will start offering loans to small businesses in Australia through its web-based platform, after sophisticated and wholesale investors were welcomed to the site last week.
The introduction of the platform comes as Equitise, a new equity crowdfunder, expects to facilitate its capital raisings in New Zealand for the first time next week after receiving a license from the New Zealand Financial Markets Authority.
AWI Ventures hosted a fintech event in Sydney last week where ThinCats Australia CEO, Sunil Aranha, said that the lack of competition among banks offering loans to SMEs provided an opportunity for peer-to-peer lenders to target small to medium enterprises.
ThinCats has already provided $160 million worth of secured businesses loans to SMEs in the UK. The Australian arm of business wants to offer an alternative to conventional borrowing to the nation’s 2.1 million SMEs, which finance their operations by borrowing about $73 billion a year.
ThinCats operates on an auction base site, where SMEs apply for loans through a licensed finance broker (sponsor). The amount is worth to $2 million and the sponsor is responsible for preparing a credit submission and vetting applications. Investors are open to undercutting each other on rates to offer, which results in the best possible deal for the borrower.
Small business loans currently account for 10 percent of total loans in Australia compared to 80 percent in Switzerland and South Korea. Residential loans account for 63 percent of all bank debt in Australia, compared to 34 percent in the US and 40 percent in Canada. This is the gap the p2p lender hopes to fill by acting as the go-to resource between borrowers and lenders.
As for the question what happens if the business fails, the loans are secured, and the loans given to any one business are just a part of the total investment and the lending platform arrangers a collection house to recover what’s possible, in theory.
The loans are to be priced by the market, but the present rate would be 11 percent to 18 percent, which is almost similar to the rate charged by banks for unsecured loans.