ThinCats Australia targets high net worth individuals looking for fixed-interest exposure as lenders, while large broker groups will increasingly play an integral role as introducers, or ‘sponsors’, by providing SME with leads on the borrowing side.
ThinCats Australia chief executive Sunil Aranha told Mortgage Business that ThinCats has a separate company, SANA Finance, which contracts mortgage brokers and shares remuneration for deals introduced to the platform.
“If an introducer were to be a home loan broker that has access to small business clients and wants to help those clients, they would probably not be part of the credit process, but could call and give SANA a lead and be paid 25 basis points for that lead if the deal goes through at the time of dispersement,” Mr Aranha said.
“If, however, we have a deeper relationship with some of the larger financial planning and mortgage broking houses, those would be documented under a framework with a corporate services agreement,” he said.
“The amount we pay them would be up to 75 basis points depending on the level of work done.”
Mr Aranha has worked in SME banking for over 25 years with the likes of CBA and Citibank and believes the big four are missing out on billions by not lending to growing Australian businesses.
He told Mortgage Business that SMEs in Australia are limited in the amount of finance they can access from the banking system based on the real estate security they can offer, unrelated to the actual loan.
“That is where the real issue is,” he said. “It is not about the growth that an SME can have, it’s about how much security they have to offer.
“That is really like mortgage lending for business.”
Mr Aranha estimates the gap between what the majors are lending and what they could potentially lend to SMEs is approximately $10 billion.
“There are 2.1 million SMEs borrowing $73 billion dollars, 91 per cent of which is done by the big four banks,” he explained. “So effectively if the big four say no, then the SME doesn’t have access to funds.”
Mr Aranha said he has noticed a worrying trend of SMEs unwilling to source growth funding after being turned down by the majors.
“Some SMEs that I have come across are actually reluctant to borrow if the bank turns them down because they lose a bit of confidence,” he said.
According to the ThinCats CEO, while default rates are extremely low among SMEs and lending margins are strong, the major lenders still fail to find shareholder value in ramping up their funding to small businesses.
“They are making good margins, but the level of work that goes in to analysing a small-business loan is the same as looking at a large corporate,” Mr Aranha said.
“So even if your margins are the same in an absolute sense, the smaller margins at the top end make you a lot more money,” he said.
“That is where they have always had that difficulty. But in terms of losses, the Australian banks have always had a good history with SMEs. Default rates are between 1.6 to 2.4 per cent over the last 15 years.”
ThinCats targets both start-ups and SMEs looking to grow, but does not target distressed assets, Mr Aranha said.
“A target would be a company that has reached as much as it can get with the banks based on the real estate security it could offer, and they need a top up,” he said.
“So a company borrowing a million dollars looking for $200,000 more that doesn’t have the traditional bank security in place.”
The second kind would be start-ups, where directors are well connected and have strong net asset positions, but can’t borrow from the banks because they are a start-up, Mr Aranha said.
“It usually takes one or two years of trading history before a bank will provide a facility to you,” he added.