Attempts to tap new sources of funding for SME lenders via securitisation have made some progress this year, with the development of a standardised loan data reporting template.
The Australian Securitisation Forum developed the template and has published the first version. Its aim is that by encouraging a standard approach to reporting SME lending data it will give investors a clearer and more comparable picture of the asset class.
Judo Bank treasurer Michael Heath worked on the template, the first version of which was released earlier this year. Speaking at the ASF’s 2021 Conference yesterday, Heath said SME lending is complex because the businesses are structured for asset protection and tax planning. There are different legal entities, sometimes in the one business, and there may be multiple collateral items for one loan.
“It is a challenge to work through. The idea for the template was to focus on the commonalities of the asset class, while also catering to the diversity of collateral types (secured, unsecured) and collateral items,” he said.
James Donovan, the head of funding at Shift (formerly GetCapital) said: “Securitisation of SME lending is difficult because the market lacks homogeneity. If we can get this right, there is no reason the market would not move towards public securitisation of SME lending.”
Donovan, who was also speaking at the ASF conference, said: “Technology is part of the solution. Increasingly lenders are looking at bank account information, asset registers and other sources.
“It allows lenders and potentially investors to get better data on small business borrowers.”
In September, the Productivity Commission released a research paper, Small Business Access to Finance: the Evolving Lending Market, which said one of the constraints in the SME loan market was limited funding for new lenders.
This issue was recognised with a government initiative focusing on expanding the pool of available capital through securitisation. The Australian Business Securitisation Fund was launched in 2019 to invest in business lenders. It has made investments in Judo Bank, OnDeck and Shift warehouses.
Catherine de Fontenay, a commissioner at the Productivity Commission, said the ABSF initiative has helped by increasing the volume of investment in the sector and creating deals that are big enough for securitisation.
De Fontenay said: “The ABSF, combined with some data standardisation, could be a game changer.”