Valiant Finance is tapping into the surge in unmet demand for small-business lending in Australia
Link copied to
Ahead of this month’s federal election, there are multiple signs of a slowdown in the Australian economy.
GDP growth is in decline, and the annual rate of core inflation is now rising at just 1.4 per cent — beneath the official cash rate of 1.5 per cent.
Most analysts attribute part of that sluggishness to the extended decline in Australia’s major east coast housing markets.
And that decline is itself partly a by-product of housing credit, which recently was flowing like a river but has now dried up; the latest monthly data from the RBA showed housing credit just fell to an all-time low.
But within that same data set another trend emerged — credit growth to businesses is climbing at the fastest pace in more than two years.
Over that same time-frame, there’s been a proliferation of new companies offering B2B lending platforms — loan services.
Filling an important niche in that market is Valiant, which finds and compares different loan offers based on key metrics provided by the applicant.
The company includes the major banks on its platform but its total list of lending providers numbers over 70.
Stockhead spoke with Nathan Carroll, Valiant’s Chief Operating Officer, to get an update on the market landscape in the wake of the banking Royal Commission and ahead of next month’s federal election.
And on the former at least, it’s been business as usual in the B2B lending market.
Since Commissioner Hayne handed down his report in February, “we haven’t noticed many changes at all,” Carroll said. “I think the shift in credit growth was pretty natural given the run-up in house prices, but from the business side we really haven’t seen much change.”
Clearly, there’s some unmet demand for small-business lending in the Australian market. So what’s driving it?
“I think what we’ve seen is the rise of some first-movers in this market, who identified a need that wasn’t being met by traditional lenders,” Carroll said.
“What a lot of B2B lending services boil down to is the provision of cashflow solutions that didn’t exist before.”
“Whether its trade or debtor finance there’s all different types of finance available and our platform places customers with the most applicable option to suit their needs.”
Valiant’s position as an industry comparator platform gives it a good vantage point as to what industries and types of loans are most in demand.
For larger lenders, Valiant takes an up-front and trailing commission fee, while smaller B2B lenders with shorter lending terms usually just pay an up-front fee.
By loan-type, he noted that short-term trade finance for Aussie small businesses had proven particularly attractive.
In such a scenario, companies receive a cash amount up front derived from the numbers of products sold and the corresponding amounts receivable.
“With a debtor facility, the lender can front you that money for a fee and you can then price some of that interest cost into your products,” Carroll explained.
“For companies — particularly those that have 90-day repayment terms — it’s a good way to match up your payables and receivables and smooth out cashflow.”
“Unsecured business loans and equipment finance have also been popular, especially for companies that need some capital to set up their own premises.”
Without going into specifics on the numbers, Carroll said demand was pretty even across sectors and there wasn’t a specific industry that jumped out.
In line with the housing downturn, he said there’d been softer activity in building and real estate.
“At the same time, I’ve got a contact in the industry who’s got more work than he can fill, so there’s always specific cases.”
To build out its B2B platform, Valiant has been active raising capital itself on private markets.
Co-founders Ritchie Cotton and Alex Molloy locked in $800k back in 2016 from a group of angel investors and Reinventure, Westpac’s venture capital arm.
That was followed by a $4m Series A round which closed last September, the AFR reported.
That raising was led by Carthona Capital, while Reinventure participated once again along with contributions from Brisbane-based VC funds Full Circle and Black Sheep Capital.
Carroll told Stockhead that when it comes to raising capital, companies should keep two things in mind.
“In my experience, you want to raise an amount of money that’s the right fit for your position in the market. So when you’re getting ready for raise funds to kick off a major growth phase, you’re working from a solid base,” he said.
“In addition, finding a great investment partner is key. It’s not just about the capital — you want to find investors who offer expertise and network connections to help build your business.”