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Types of Private Credit Products for Small Business: What the Stats Say

Although private credit offers faster approvals, flexible structures and alternatives to the major banks, it comes with its costs and risks. Read on to find out.

Private Credit Products

As the practice of private credit, or lending from non-bank institutions, becomes a growingly significant funding source for Australian small businesses, it is more paramount than ever for businesses to understand the types of products available to choose the right finance for their business.

Empirical Legal helps business owners make informed decisions about private credit. We guide you through loan terms, security requirements and compliance obligations so you can secure funding without unpleasant surprises.

Summary

  1. Choose term loans for larger, long-term funding needs.
    Fixed-term lump-sum loans can support equipment purchases, expansion or refinancing, though they often cost more than bank loans.

  2. Use working capital loans to cover short-term expenses.
    These quick-approval, short-term loans can bridge payroll, supplier invoices or seasonal cashflow gaps.

  3. Tap invoice finance to unlock cash from unpaid invoices.
    Lenders advance a portion of invoice value to improve cashflow without waiting for customer payments.

  4. Leverage asset-backed lending to fund growth using owned assets.
    Loans secured by machinery, vehicles or stock can free up capital for investment while keeping terms longer.

  5. Apply trade finance to manage import and export cashflow.
    Short-term funding for supplier payments can help secure bulk discounts and manage working capital in global trade.

  6. Consider merchant cash advances for sales-based repayment flexibility.
    Repayments tied to daily card sales can suit retail and hospitality businesses but may carry high effective costs.

  7. Explore hybrid facilities for tailored, multi-asset funding solutions.
    Combining elements of different loan types can offer flexibility but may involve more complex and costly terms.


1. Term loans

What they are
A lump-sum loan repaid over a fixed term, usually one to five years, with interest charged on the outstanding balance.

Common uses

  1. Buying equipment or vehicles;

  2. Funding business expansion; and

  3. Refinancing existing debt.

Market data
According to the Reserve Bank of Australia (RBA), private credit providers issued an estimated $15 billion in term loans to SMEs in 2023, representing about 8% of total SME term lending (RBA, Growth in Global Private Credit). Average interest rates are typically >2 percentage points higher than equivalent bank loans.


2. Working capital loans

What they are
Short-term loans designed to cover day-to-day operating expenses.

Common uses

  1. Paying wages during slow periods;

  2. Covering supplier invoices before customer payments arrive; and

  3. Bridging seasonal cashflow gaps.

Market data
The Australian Securities and Investments Commission (ASIC) reports that working capital loans are the most common unsecured product offered by private credit providers to SMEs, with average loan sizes under $250,000 (ASIC, Australia’s evolving capital markets: A discussion paper on the dynamics between public and private markets). Approval times can be as fast as 24-72 hours.


3. Invoice finance

What it is
Lending against unpaid invoices, with the lender advancing a percentage (often 70-90%) of the invoice value.

Common uses

  1. Improving cashflow in industries with long payment terms; and

  2. Funding growth without waiting for customers to pay.

Market data
The Productivity Commission found invoice finance to be an over $70 billion market in Australia annually, with non-bank lenders holding the largest share in SME segments (Productivity Commission, Small business access to finance: The evolving lending market). Fees are usually a percentage of the invoice value plus a service fee.

Common private credit products and typical terms

  1. Term loan

  • Loan size range: $50k-$5m

  • Term length: 1-5 years

  • Security type: Secured/unsecured

  • Typical interest/cost range: 8%-15% p.a.

  1. Working capital

  • Loan size range: $10k-$500k

  • Term length: 3-24 months

  • Security type: Often unsecured

  • Typical interest/cost range: 10%-20%+ p.a.

  1. Invoice finance

  • Loan size range: $50k-$2m

  • Term length: Rolling

  • Security type: Invoice ledger

  • Typical interest/cost range: 2%-5% of invoice value/month


4. Asset-backed lending

What it is
Loans secured by specific business assets, such as machinery, vehicles or stock.

Common uses

  1. Purchasing new plant and equipment; and

  2. Unlocking value from owned assets for other investments.

Market data
Asset-backed private credit to SMEs totalled an estimated $12 billion in 2023 (RBA, Growth in Global Private Credit). Driven by demand in manufacturing, construction and transport, this segment has grown by over 30% since 2020.


5. Trade finance

What it is
Short-term funding to pay suppliers for imported goods, often repaid once the goods are sold.

Common uses

  1. Managing cashflow in import/export businesses; and

  2. Leveraging bulk-buy discounts from overseas suppliers.

Market data
The RBA notes that private lenders now account for around 25% of Australia’s trade finance market for SMEs (RBA, Growth in Global Private Credit). Fees often include both interest and transaction-based charges.

Growth in selected private credit markets (2019-2023)

  1. Term loans

  • 2019 Market Size ($bn): 11.5

  • 2023 Market Size ($bn): 15.0

  • % Growth: +30%

  1. Asset-backed loans

  • 2019 Market Size ($bn): 9.2

  • 2023 Market Size ($bn): 12.0

  • % Growth: +30%

  1. Invoice finance

  • 2019 Market Size ($bn): 8.0

  • 2023 Market Size ($bn): 10.9

  • % Growth: +25%

  1. Trade finance

  • 2019 Market Size ($bn): 4.0

  • 2023 Market Size ($bn): 5.0

  • % Growth: +25%

Sources: RBA April 2024, Productivity Commission 2023


6. Merchant cash advances

What they are
Funding where repayments are taken as a fixed percentage of daily card sales.

Common uses

  1. Hospitality and retail businesses with strong card turnover; and

  2. Seasonal businesses needing flexible repayments.

Market data
ASIC data shows merchant cash advances make up a small but growing share of private credit, with higher effective annual rates due to daily repayment structures (ASIC, Australia’s evolving capital markets: A discussion paper on the dynamics between public and private markets).


7. Hybrid facilities

What they are
Products combining features of multiple loan types, such as a working capital facility secured by both invoices and equipment.

Common uses

  1. Businesses with mixed asset bases and cashflow profiles; and

  2. Growing SMEs who want flexibility without multiple loan agreements.

Market data
The RBA identifies hybrid facilities as a key area of innovation in the private credit sector, often offered by fintech lenders targeting SMEs with turnover between $2m-$20m.

Key advantages and risks of private credit products

  1. Term loans

  • Advantages: Predictable repayments; larger amounts

  • Risks: Higher rates than banks; prepayment penalties

  1. Working capital

  • Advantages: Fast approval; unsecured

  • Risks: Higher cost; short term can create rollover debt

  1. Invoice finance

  • Advantages: Improves cashflow; scales with sales

  • Risks: Costs add up if invoices are slow to pay

  1. Asset-backed loan

  • Advantages: Unlocks asset value; longer terms available

  • Risks: Asset repossession

  1. Trade finance

  • Advantages: Supports growth; leverages supplier discounts

  • Risks: Currency and shipment risks

  1. Merchant cash adv.

  • Advantages: Repayments align with sales

  • Risks: High effective rates; daily cash drain

  1. Hybrid facilities

  • Advantages: Flexible, tailored solutions

  • Risks: Complex terms; higher fees

Choosing the right product

When selecting a private credit product:

  1. Match the loan term to the asset life: Avoid funding long-term investments with short-term debt.

  2. Understand all costs: This includes fees, interest and early exit charges.

  3. Check security terms: Know what assets or guarantees are at risk.

  4. Have an exit plan: Plan how you’ll repay or refinance before the term ends.

  5. Get independent review: Have a lawyer or adviser check the contract for hidden risks.

In summary,

Private credit products give small businesses more options than ever before. They can unlock growth, smooth cashflow and provide flexibility the banks won’t but they come at a price, often literally in the form of higher interest rates and sometimes in more aggressive enforcement terms.


Empirical Legal is a corporate advisory and technology law firm for startups, scaleups and SMEs.

We combine legal, technology, and business experience and expertise to deliver practical, actionable advice and solutions.

If you’re considering private credit, Empirical Legal can help you compare options, negotiate better terms and ensure your funding choice supports your business goals.

Reach out to Empirical Legal today.