Member Article

Non-bank lending fuels growth opportunities says Grant Thornton

New research from business and financial advisers Grant Thornton UK LLP reveals that fast growing mid-market businesses are accessing financing options that were previously only open to large corporates. Direct lending into mid-market companies is driving innovation and building a new asset class for investors.

That’s one of the main findings of the Capital for Commerce research conducted by the firm, which has main offices in Manchester and Liverpool.

The research reveals that some four-fifths (79%) of respondents are now positively inclined towards non-bank lenders – defined as financial firms that lend to businesses, but do not accept deposits - demonstrating a clear acceptance of the opportunity which the rise in non-bank lending presents for raising finance and providing capital for commerce.

The survey of 100 UK mid-market companies and 100 non-bank lenders (including private equity, distressed, credit and hedge funds) also shows that when it comes to choosing a lender, the largest share of mid-market respondents (34%) identify access to capital as the most important factor, followed by terms and pricing at 23% and just 10% valuing existing relationships.

David Riley, Head of North West Debt Advisory at Grant Thornton: “There is a step change in the financing market. The proliferation of non-bank lenders has been a key driver of innovation and these firms are an exciting source of funding for mid-market companies.

“Previously, only large corporates could access products that brought a multitude of benefits, such as longer maturities and non-amortising tranches which allow management to reinvest more cash back into their business to grow.”

Grant Thornton’s recent Agents of Growth events, conducted with leaders from mid-market businesses, showed that access to finance was considered a critical barrier to growth.

Out of the sources of non-bank finance available, the survey found that over half of companies (56%) have used credit funds. This is followed by private equity firms with a direct lending arm (49%), junior debt funds (40%) and asset backed lenders (39%).

Despite the clear benefits non-bank lenders present, hesitancy still exists. Only 21% of those mid-market corporates that have not yet used non-bank lenders would consider doing so in the future. Reasons for this reluctance included perceptions around high rates of interest.

Looking at the non-bank lenders themselves, the research highlights that four-fifths (82%) of respondents cite corporates’ unrealistic expectations as the reason that potential deals do not complete, followed by a lack of awareness and understanding of the problems that can underpin deals (41%). These results indicate that more work is needed to improve communications with corporates over these misperceptions.

David Riley added: “For firms yet to use non-bank lenders, there still seems to be some education required on what benefits non-bank lending can bring and it is worth keeping in mind that corporate respondents in our study had resoundingly positive experiences with them.”

This was posted in Bdaily's Members' News section by Simon Malia .