Key findings of a survey of finance professionals conducted by Tradeteq, the technology provider for securitisation-as-a-service and bank asset distribution
Institutional investors rank second only to banks as the primary source of funding for micro, small and medium-sized enterprises (MSMEs), while alternative lending platforms rank third while seeing significant growth. This is according to a new survey by Tradeteq, a leading technology provider for securitisation-as-a-service and bank asset distribution.
About a quarter (24.7%) of small businesses said they source funding from institutional investors for new projects, while almost a half (49.3%) said they source it from traditional banks. Alternative lending platforms come third (15.6%) following significant growth in this area in recent years - the industry has grown globally from $1.3 billion in 2018 to $3.5 billion in 2023.
Tradeteq's survey also found that more than half (54.4%) of institutional investors were ‘very likely' to decrease their portfolio allocation of commercial property in favour of private credit last quarter. Increasing private credit investment will help drive funding of MSMEs and stimulate growth.
Mattia Tomba, Head of International Markets at Tradeteq, said: "Previously, institutional investors took a more cautious approach to investing in MSMEs and startups, but we're now seeing them display a greater appetite for risk. At the same time, the businesses are meeting stricter compliance criteria of the lenders and are therefore able to benefit from lower borrowing costs."
Because traditional banks are more heavily regulated and the capital requirement to back MSMEs is higher, their loan application criteria are stricter, and the funding process is slower compared to alternative lenders. They look at factors such as how long the business has been operating, its credit score and annual revenue, all of which have traditionally been less favourable for MSMEs and startups.
Tomba added: "Tradeteq supports deal flow between asset originators and investors in corporate loans, and facilitates converting private credit assets into tradeable securities, in a way that brings transparency to a traditionally opaque market. This is vital to boost corporate lending, which is one of the key factors that will ensure every great idea is funded and help accelerate economic recovery."
The survey of more than two hundred finance professionals in private credit was carried out at the start of March 2024.
