The Australian economy remains resilient, with business credit growth reaching 7.7% over the year to Aug. 31, according to data from the Reserve Bank (RBA).
This marks an increase from 7.4% in the previous year. In contrast, home lending grew by 5%, and personal credit by just 2.5%.
Strong growth in business lending is attributed to significant infrastructure investments in housing, renewable energy, and transportation, as well as business upgrades post-pandemic.
“Stable economic growth is supporting the demand for credit from businesses,” said Simon Arraj (pictured above), founder and director of Vado Private.
This rising demand is also driven by investments in technology and supply chains, reshoring production, and boosting inventory.
Arraj said that housing credit growth has moderated compared to pre-GFC periods due to stricter lending standards and rising house prices.
While investor demand remains solid, the housing market's slowed pace makes business credit growth even more notable.
“Business credit growth is now stronger by comparison and will continue to support returns on private loans,” Arraj said.
For investors, private credit offers an attractive alternative, with yields of around 10% per year – double the returns on bank deposit rates, which were below 5% in August.
According to Arraj, this presents an opportunity for Australian investors to diversify their portfolios beyond property and cash into private credit for higher returns.
Arraj emphasised that private credit can deliver superior risk-adjusted returns compared to property investments.
“Many Australian retail investors would benefit from diversifying into higher-yielding private debt,” he said, noting that private credit doesn't require large upfront capital or stamp duty, making it more accessible than property investment.
Total household wealth in Australia rose 9.3% in the June quarter, reaching $16.48 trillion, driven mainly by property values. Property assets now account for 68.1% of household wealth.
However, Arraj pointed out that private credit offers a more flexible and rewarding option for investors looking to grow their wealth without the barriers associated with property investment.
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