News
HCSF – Private Debt Investor Roundtable Discussion on SME lending
“Private debt is growing into its own asset class. Investors are able to assess returns better and there is a bigger range of investor groups with different rationales and approaches now coming to the table. Previously, when defined as either fixed income or as private equity allocators, they had more constraint,” says Dalit Nuttall, a senior partner at London-based placement agent Arbour Partners.
But while the crowds flocking to invest in the mid-market space – direct lending in particular – have been well documented, it seems that the opportunity to support smaller businesses has dipped somewhat below the radar.
To discuss the SME lending landscape, PDI brought together a group of five experts around a table at the offices of Octopus Investments in London’s Holborn district. Grant Paul-Florence, head of intermediate capital at Octopus, agrees that – amid a crowded lending landscape – the SME market feels relatively becalmed.
“At the start-up stage, there appears to be plenty of funding, and also for mid-market SMEs,” he says. “But we focus on the £1 million ($1.3 million; €1.1 million) to £5 million EBITDA bracket, and that is under-served. The banks are now required to hold more regulatory capital and so are lending less, causing them to prioritise larger borrowers rather than offering bespoke solutions to these SMEs. VCTs used to service these SMEs but have been hit by European state aid rules, severely limiting their ability to provide funding to profitable SMEs and so have been largely forced to withdraw.”
John Harrison is a senior managing director at Harbert Management Corporation, an investment firm which has its corporate headquarters in Birmingham, Alabama but invests across the US and also from three European offices in London, Madrid and Paris. He says the US and European SME markets have evolved very differently in terms of finance provision: “In the US, there is a long history of major non-bank players such as GE Capital and CIT and borrowers have less reluctance to borrow from NBLs. For certain private equity-type deals such as acquisitions or growth capital, there used to be fewer options than there are today, but the likes of property, equipment and working capital finance have been available from NBLs for a long time.”
To view the full article, please click here.