Colter Bay blames lending bias for Australia's slump

Colter Bay Capital has published research arguing that Australia's productivity slump is rooted in credit allocation. The analysis says lending favours property-backed borrowers over asset-light businesses.

The Sydney-based private credit manager argues that the banking system directs funding toward companies with hard assets to pledge, while businesses built around software, intellectual property and specialised expertise face tighter access to finance and higher borrowing costs.

Sean Garman, Chairman of Colter Bay Capital, linked that pattern directly to weaker national productivity. "We've found that a key causal element behind Australia's productivity decline is the misallocation of capital, specifically credit," he said.

The research enters a wider debate about Australia's weak output growth per hour worked. Labour productivity fell in 2024, leaving output per hour broadly flat since 2016 and negative since 2022, according to figures cited in the research.

It also points to Australia's position near the lower end among advanced economies in terms of post-pandemic productivity growth. It notes that the country ranks 18th out of 69 economies in the IMD World Competitiveness Yearbook.

Property bias

At the centre of the argument is the structure of bank lending. Reserve Bank data cited in the research show that about half of all small-business lending is secured against residential property, while housing accounts for the largest share of banks' loan books.

That can make borrowing relatively straightforward for business owners who already hold real estate. For companies with lighter balance sheets, the same model can leave them with fewer financing options, even when their products or services have room to expand.

Garman said the result is a distortion in which access to credit depends less on productive potential than on the availability of collateral.

"Low-productivity, low-innovation companies get credit because they have property to pledge, while highly innovative businesses are actively penalised," he said.

He argued that the system then reinforces itself, as higher property values expand borrowing capacity and push more lending back into the same asset base. "It creates a feedback loop," Garman said. "For businesses without real estate, it becomes a doom loop."

Investment gap

Colter Bay's research links this to capital deepening, or the amount of productive capital available per worker. The Productivity Commission has identified capital deepening as accounting for close to half of Australia's productivity growth since Federation, according to the research.

Against that backdrop, business investment as a share of GDP now sits below its level in the early 2000s, the analysis said. That leaves the economy with a weaker base from which to raise output.

Garman framed the issue more broadly in terms of economic development and business formation. "If you want a thriving, growing, modern economy, you need more capital, more investment, more innovation and more technology," he said.

The question has become more pressing as companies seek to adopt artificial intelligence and digital tools. Colter Bay says Australia ranks 54th globally in corporate uptake of those technologies, which it presents as another sign of underinvestment in parts of the business economy that do not fit conventional property-backed lending models.

The firm pointed to companies such as WiseTech Global, Pro Medicus, TechnologyOne and Megaport as examples of Australian intellectual property creating global value. It argues that the larger issue is how many similar businesses struggle to secure growth funding before reaching scale.

Private credit role

The findings have shaped how Colter Bay assesses lending opportunities. The manager says it is focusing on sectors that show what Garman described as a productivity gap, where additional investment may generate stronger returns than in areas that are already well-financed.

"We ask which sectors have a productivity gap, or productivity headroom, where every extra dollar of capital can produce above-average returns," Garman said.

That view sits within a relatively small private credit market in Australia. Garman said private credit accounts for about 7 per cent of total credit in the United States, compared with 2.5 per cent of business debt in Australia.

Colter Bay estimates that the gap leaves about 26,000 established lower-mid-market businesses underserved, representing a funding shortfall of close to AUD $25 billion. The firm launched in March 2026 with AUD $100 million in institutional liquidity and says it is targeting that segment of the market.

Managing Director Mark Wan leads the business. Its advisory board includes former New South Wales Premier Nick Greiner and former Principal Asset Management executive Kirk West.

Garman argues that whether Australia's financial system is helping or hindering the businesses that can drive its next phase of growth warrants far closer scrutiny.