UK-based Beechbrook Capital is seeking between £100 million and £200 million (€287.3 million; $311.8 million) for its first fund targeting lending to sponsorless small- to medium-sized businesses, the firm announced.
Beechbrook, which traditionally lends to private equity-owned firms throughout Europe, launched the strategy following increasing queries from sponsorless UK SMEs looking for debt finance but struggling to get it from other sources, Paul Shea, partner at Beechbrook, told PDI.
“The new fund will take up the opportunity that we see in lending directly to UK SMEs,” Shea said.
The firm will lend to businesses with turnover of between £5 million and £50 million. According to the office of national statistics, there are about 40,000 in the UK, Shea continued.
Beechbrook is planning to hold a first close on the UK SME Credit Fund in October 2015.
“While there are numerous other credit funds in the market, these generally target larger companies,” Shea commented in a statement. “The UK SME Credit Fund is a natural evolution for Beechbrook. We have received numerous requests for funding of this type from accountants, solicitors and corporate finance advisers around the country, who are acutely aware of the shortage of long-term development and expansion finance currently available to UK SMEs.
The fund, which will be closed-ended, is the third from Beechbrook. It will target gross returns of about 10 to 12 percent by extending senior and unitranche cash flow term loans, something that banks are reluctant to provide as they focus more on working capital or asset-based type facilities, Shea told PDI. Beechbrook expects to originate around 200 opportunities per year and complete seven or eight high quality loans.
Boosting its origination capabilities, Jon Herbert joined Beechbrook as managing director on the new fund in May and the London-headquartered firm plans to build out its origination team further throughout the UK, Shea said. For the past three years, Herbert was an in-house debt advisor at private equity firm LDC. Prior to that, he was head of acquisition finance for ten years at UK bank Lloyds with responsibility for sourcing, executing and managing leveraged loans in the SME market.
Also in May, Jon Penfold became a member of the Beechbrook advisory board and investment committee. Penfold has 32 years’ experience including 16 years spent at Royal Bank of Scotland, managing loans to SMEs as well as equity investments. Previously, he spent four years at private equity firm 3i.