2023-05-02 19:55:00.104 GMT By Paula Sambo
(Bloomberg) — Canadian private credit firm Kilgour Williams Capital struck a partnership with Psagot Investment House Ltd. to offer its strategy for small-business lending to Israeli investors.
The firms this week are launching the Psagot Kiwi Business Credit Fund to invest in small business loans that are originated by fintech companies in the US. The fund is targeting net returns of 13% to 15%.
The underlying loans tend to be from $50,000 to $400,000, for “small businesses that you would see in every U.S. street such as restaurants, grocery stores, gas stations and doctor’s offices,” KWC Founder Colin Kilgour said in an interview. These businesses would not necessarily be attractive to banks as they lack traditional sources of collateral, such as real estate or accounts receivables, he said. “They tend to rent from a landlord, they don’t have significant physical assets, they tend not to have large accounts receivables,” Kilgour said.
The fund accepts pledges of the future revenue, or a share of the businesses’ credit card income, as the source of repayment. Kilgour also requires a personal guarantee from the business owners. In addition, the firm relies on Uniform Commercial Code filings to establish its legal right to a borrower’s assets or property in the case of default, Kilgour said.
These filings give the lender a right to keep possession of property belonging to another person until the loan is repaid. It protects the interests of the lender in case the borrower defaults or goes into bankruptcy, in which case those business assets would be foreclosed on, seized, or sold off to pay back the lender.
KWC has been managing this strategy for almost six years. It returned 0.7% in February, bringing the 1-year return to 12.9% and return since inception to 15.1%. Last month, the firm launched this strategy for U.S. clients. It sees the strategy reaching $1 billion in as early as three years across its Canadian, American and Israeli clients, Kilgour said. Psagot manages over $10 billion, and KWC has about C$130 million ($95.4 million) under management, with roughly half under this strategy.
The “extensive experience” of the two firms have will create synergies for investors, Daniel Leventhal, managing partner at Psagot Properties, said in a message. “These new products are especially suitable for these challenging times we are in,” he said.
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