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The appetite for a bank bond alternative has been heating up for tenants seeking commercial leases.
According to eGuarantee, the company experienced a 120 per cent increase in the number of bonds it issued last financial year.
The digitised commercial lease bond provider also reported that its clientele has notably shifted, with some of the biggest names in the commercial property sector embracing the service. The firm now counts Dexus, Centuria Capital and EG Funds among its client list.
Founded by Cedric Fuchs and Shaun Sergay in 2021, eGuarantee provides a digitised, non-collateralised alternative to traditional bank guarantees for securing commercial leases.
Instead of cash or capital, the businesses that apply for a lease bond need to provide financial performance updates each year.
The turnaround time for a digitised lease bond from eGuarantee is reportedly 48 hours as opposed to the several days to weeks often needed to process a bank guarantee.
In the years since eGuarantee first debuted in the Australian market, the founders report a turnaround in sentiment towards their product.
“When we launched almost three years ago, digitised commercial lease bonds were already popular overseas but here in Australia the top end of town was initially reluctant – that’s really starting to change,” said Sergay.
Now issuing on average one bond a week, Sergay reported that attitudes on the part of tenants particularly changed when they became aware of the opportunity to free up cash to invest in their businesses.
“The biggest advantages of lease bonds are that tenants are not required to put down the debilitating capital necessary with traditional bank guarantees and for landlords, it is a safe, secure digital guarantee that also covers them for any additional incentives they might offer,” said Sergay.
Stephen Ellis, who serves as a strategic adviser for eGuarantee and was formerly CEO and partner of Knight Frank Australia, explained that in this current economic environment, small businesses are keen to make use of any spare cash they can get.
“This product is a game changer for the market. Having money released from the banks into the ecosystems of SMEs fosters growth and resilience within the industry,” said Ellis.
“We regularly see these otherwise trapped funds shift into improving other elements of the business, making it more robust,” he explained.
Examples of recently redeployed funds, thanks to an eGuarantee bond, include an accounting firm that unlocked $240,000 for a larger space and high-spec office fitout, and a boutique cycling store that was able to reinvest $100,000 in stock purchases.
“In Sydney, a listed REIT successfully attracted a tenant, unlocking $240k for an accounting firm, enabling a larger space and high-spec fitout.
“Similarly, a private landlord increased lease security for a boutique cycling store, accessing $100k for stock purchases.”
Christopher Hynes, Dexus’ head of leasing and workplace, explained the commercial megafirm’s view on the product from the perspective of a landlord.
“We pride ourselves on being at the forefront of innovation and adaptable to market needs. We see the benefits of lease bonds in place of traditional bank bonds, allowing our customers to utilise the capital they have to reinvest in their business growth with no risk to us as the landlord,” he said.
While fairly commonplace in Europe, Canada and the US, Australia has some catching up to do. But Sergay is hoping to be at the forefront of growing the use of digital lease bonds in Australia in the years to come.
“We are just getting started. Our aim is to double our growth in 2024 as more and more tenants and landlords realise that this is the better, more secure and cost-effective way to provide lease security,” he said.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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