Private debt lending has grown significantly since 2008 and is becoming an increasingly “valuable” source of finance for smaller businesses, a major study has revealed.
Research published by the British Business Bank in collaboration with the British Private Equity and Venture Capital Association (BVCA) shows that over £18 billion of private debt lending took place between 2018 and 2019.
Private debt is defined as any debt held by or extended to privately held companies and usually involves non-bank lenders making loans to companies with bespoke requirements or a need for greater flexibility in terms of financing structure.
According to the UK Private Debt Research Report, private debt is “often the only or most viable funding solution for smaller businesses and mid-cap firms” and may prove to be “particularly suitable for companies coming out of the Covid-19 downturn with a growing need for investment”.
Across £18.4 billion of lending in 2018/19, the research shows that 62 per cent of deals were considered “growth transactions” and were used to upscale or expand existing operations. The average size of each growth transaction was £2.2 billion, meaning over £1 billion of debt lending was used to grow small businesses.
The report, which uses data from the 55 biggest funds, also reveals that four in five (82 per cent) deals took place outside of London, with strong regional demand for private debt finance in the North West and Yorkshire and The Humber.
By sector, the manufacturing industry represents the largest number of deals by volume (19 per cent), followed by information and communication (16 per cent), and professional, scientific and technical activities (13 per cent).
Commenting on the figures, Catherine Lewis La Torre, Chief Executive Officer of the British Business Bank, said: “In a relatively short period of time, private debt has established a position as a viable type of funding for the UK’s smaller businesses at different stages of development.
“As the focus shifts from stabilisation to economic recovery, supporting business growth will be a fundamental driver of a thriving post-Covid-19 UK economy. Ensuring that businesses can access the funding best suited to their needs will be vitally important in the coming years and private debt has an important role to play.”
BJ Chong, a Director with Palmers Solicitors, who specialises in corporate finance, said: “This latest research underlines the fact that there are many finance options open to SMEs, particularly those who are looking for outside investment to help sustain their businesses during the current Covid-19 economic difficulties.
“Our team of corporate finance experts have the experience required to lead business owners through the investment process and can help advise on the most beneficial arrangements.”
For advice and support with all aspects of corporate finance, please contact us.