High interest rates throughout 2024 have made it increasingly difficult for Australian businesses to access traditional bank loans.
In response, private credit has emerged as a crucial alternative, offering flexibility, speed, and tailored financial solutions to businesses looking to survive and grow.
According to Peter Arnold (pictured above), director of GAP Business Loans, private lending is playing a pivotal role in bridging the gap left by stricter bank lending criteria.
“I’ve seen firsthand how important having access to private lending can be for businesses,” Arnold said. “The private credit sector has emerged as a valuable option to drive business growth and help companies survive and succeed when traditional lending options are less accessible.”
With traditional banks tightening their criteria amid persistent high interest rates, businesses are turning to private lenders to secure funding for growth.
The Reserve Bank (RBA) reports that private credit now accounts for approximately 2.5% of total business debt, a small but rapidly growing share. Notably, the RBA highlighted that private credit has been expanding faster than traditional business credit in recent years.
This trend aligns with rising business debt levels, which remain well above post-GFC averages. The RBA attributes this to businesses’ relatively low leverage and robust cash reserves, enabling them to manage debt despite higher borrowing costs.
Arnold emphasised the advantages of private lending for businesses aiming to seize opportunities in areas such as technology investments, infrastructure expansion, and market entry.
“Private lending offers a level of flexibility and speed that traditional banks simply can’t match,” he said. “It allows businesses to seize opportunities and adapt to rapid changes in a competitive environment.”
One of private credit’s key strengths lies in its adaptability. Unlike the standardised offerings of traditional banks, private lenders can create customized financial solutions to meet specific business needs. This flexibility is particularly critical during economic uncertainty or periods of rapid change.
For example, businesses dealing with supply chain disruptions or rising operational costs can rely on private credit to stabilise operations and maintain momentum.
“Private lenders can customise solutions to meet specific business needs, unlike the one-size-fits-all approach often taken by traditional banks,” Arnold said.
Another major advantage is the streamlined application process. Compared to the extensive collateral requirements and lengthy approvals of traditional banks, private lending offers a more accessible pathway, especially for small and medium-sized enterprises (SMEs) poised for growth.
“Private lending often doesn’t require the extensive collateral or lengthy approvals typical of banks,” Arnold said. “This opens doors for small and medium-sized enterprises that may not have the resources to secure traditional funding but are poised for rapid growth with the right support.”
Beyond supporting individual businesses, the growth of the private credit sector benefits the broader economy. By enabling business expansion, private lenders contribute to job creation, increased productivity, and economic resilience.
“The growth of the private credit sector in Australia is a testament to its value as a vital part of the financial landscape,” Arnold said. “As businesses continue to operate around the challenges of a high-interest-rate environment, private lending will remain essential in helping them adapt, grow, and thrive.”
As interest rates remain elevated and bank lending remains cautious, the role of private credit in fueling business growth is expected to expand further. Private lenders are not only filling critical gaps but also offering the financial agility needed for businesses to navigate challenges and seize opportunities.
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