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Non-bank lenders provide growth opportunities to mid-market businesses

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Mid market businesses have increased opportunities for growth since financing options, previously only open to large corporates, have become accessible for mid-market corporates.

Grant Thornton UK LLP surveyed 100 mid sized businesses and 100 non-bank lenders, and revealed that 61% of corporate respondents have used a non-bank lender.

Shaun O’Callaghan, UK head of debt advisory at Grant Thornton said: “I believe this is a once in a generational 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”.

Daniel Smith, Partner at Grant Thornton, assessed the benefits that non-bank lenders offer mid-sized corporates. He said: “Non-bank lenders can be attracted to alternative funding structures such as non-amortising debt, where a substantial portion of the loan is not repaid during the loan period, because the total interest they receive remains constant”

“These bullet repayment structures can be hugely beneficial to mid-sized businesses, as it opens up the possibility for them to invest more of their operating cash flows into fuelling further growth, rather than paying down debt”.

“As a result of benefits such as these, corporates have become increasingly aware of non-bank lending activity with virtually all corporate respondents (92%) thinking that these firms have been ‘active’ or ‘very active’ over the previous two years”.

Grant Thornton’s research found that 45% of non-bank lenders are looking to invest over the long term and offer a range of interest rates; however the research highlighted a need for better understanding between the lenders and respondents.

Findings show that in the past year 15% of lenders began 15 or more deals but only 2% were completed with 82% of respondents citing corporates unrealistic expectations as to why deals are not completed. Furthermore, Grant Thornton found that some businesses perceive lenders to put their own their returns ahead of the interests of business owners’.

Daniel Smith said: “Non-bank lenders need to do more to improve communications with corporates over these misconceptions. If they can tackle these misunderstandings there is surely room for further acceptance and growth”.

Stephensons’ Commercial Team can assist businesses in finding the right financial advice for their particular needs.  There are a significant amount of products in the market and obtaining the correct advice at the outset may well save your business money in the future.

By Nicola Whittle, associate solicitor in the commercial litigation department