Banjo Loans and the Aura High Yield SME Fund

Australian SMEs have historically been underserved in the unsecured and partially secured business lending space.

This is in part due to authorised deposit-taking institutions (ADI’s) focusing on large businesses, as the relative costs of processing smaller business loans under their legacy systems weighed down. In the five-year period to September 2019, Australia’s small and medium sized businesses primary choice of growth financiers shifted from main banks to non-bank lenders¹. Over the same time period ADI banks saw a 33 per cent decline in (SME) business loan approvals while approval rates remained around 94%² and the number of SME businesses grew by 6.96% over the five-year period to 30 June 2019³. This shift in preference was driven by: 

• ADI’s requirement for owners of SMEs to post significant personal collateral;

• Lengthy loan application processing times;

• Lack of risk-based pricing; and

• Lack of tailored durations due to ADIs on-balance-sheet funding models.

In 2016, Banjo Loans emerged as a solution to all four of these friction points, writing secured and unsecured loans with risk-based pricing, and rewarding strong businesses with loan durations tailored to the needs of each borrower’s unique situation. Banjo’s business characteristics and credit & underwriting systems impressed the Aura High Yield SME Fund, leading to the fund’s inaugural investment in 2017. With almost four years of partnership, the Aura High Yield SME Fund’s funding commitments have grown in line with Banjo’s book, helping to support over A$215m in loans to Australian SMEs.  

This year has been an unprecedented stress test of Banjo’s credit & underwriting and servicing capabilities. Banjo’s communication with both its borrowers and the Aura High Yield SME Fund has been commendable. To date, Banjo has kept its loss rates consistently below 2%* and well below the credit enhancement embedded in its deal structure with the Aura High Yield SME Fund, even throughout the largest contraction in Australian Gross Domestic Product on record - an achievement Banjo accredits to its cutting-edge technology, credit experience and rigorous processes. 

The team at Banjo have an exciting future ahead of them as they continue to act as an intermediary for Australian SMEs and the debt capital markets.  

* Note that this is based on loans in arrears for more than 120 days. 

1. Source: Australian Institute of Credit Management, December 2019

2. Source: Australian Banking Association Economic Report, September 2019

3. Australian Bureau of Statistics Source: 8165.0 Counts of Australian Businesses, including Entries and Exits, June 2015 to June 2019

Important information

This information is for accredited, qualified, institutional, wholesale or sophisticated investors only and is provided by Aura Group and related entities and is only for information and general news purposes. It does not constitute an offer or invitation of any sort in any jurisdiction. Moreover, the information in this document will not affect Aura Group’s investment strategy for any funds in any way. The information and opinions in this document have been derived from or reached from sources believed in good faith to be reliable but have not been independently verified. Aura Group makes no guarantee, representation or warranty, express or implied, and accepts no responsibility or liability for the accuracy or completeness of this information. No reliance should be placed on any assumptions, forecasts, projections, estimates or prospects contained within this document. You should not construe any such information or any material, as legal, tax, investment, financial, or other advice. This information is intended for distribution only in those jurisdictions and to those persons where and to whom it may be lawfully distributed. All information is of a general nature and does not address the personal circumstances of any particular individual or entity. The views and opinions expressed in this material are those of the author as of the date indicated and any such views are subject to change at any time based upon market or other conditions. The information may contain certain statements deemed to be forward-looking statements, including statements that address results or developments that Aura expects or anticipates may occur in the future. Any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected in the forward-looking statements. This information is for the use of only those persons to whom it is given. If you are not the intended recipient, you must not disclose, redistribute or use the information in any way.

Aura Group subsidiaries issuing this information include Aura Group (Singapore) Pte Ltd (Registration No. 201537140R) which is regulated by the Monetary Authority of Singapore as a holder of a Capital Markets Services Licence, and Aura Capital Pty Ltd (ACN 143 700 887) Australian Financial Services Licence 366230 holder in Australia. View Privacy Policy here