As small but fast-growing SME lenders seek to move into the lending gap provided by the retreat of the banks, their ambitions are increasingly being supported by private equity firms and other investment groups.
The latest example is a £40 million ($52 million; €44 million) secured loan note facility committed to Leeds-based Reward Finance by Foresight Group, the infrastructure and private equity manager.
Reward is an independent lender which claims to provide secured loans to UK-based SMEs seeking flexible finance more quickly than mainstream lenders can deliver. The firm also provides invoice discounting facilities as well as short- to medium-term loans.
Founded in 2011, Reward advanced £84 million in funding in the year ending February 2017 and its loan book stood at £40 million, up 25 percent on the previous year.
The firm is 70 percent owned by Johannesburg Stock Exchange-listed Tradehold Limited, with Reward’s management team owning the remainder. Half of the Foresight facility will be used to partially refinance Tradehold funding and to grow the loan book, while the other half will be used to support the company’s ongoing growth.
Other ‘funding the funder’ deals to have completed this year include a £10 million debt facility from the UK’s RM Capital to asset-based lender Praetura Asset Finance, and a 20 percent stake taken in Gresham House by the Royal County of Berkshire Pension Fund.
“Alternative SME lenders are an increasingly important source of capital for smaller businesses due to the ongoing post-financial crisis dynamics which mean banks are still not as willing to lend as they once were, enabling alternative providers to come into the market,” said Angus Grierson, a director at LGB Corporate Finance, which advised Reward on the deal.
“We expect the trend for backing SME alternative lenders to continue as bank lending to SMEs remains limited,” he added. “This dynamic is intensified by the uncertainty surrounding Brexit, which presents an opportunity to alternative lenders who are able to deliver funding quickly, efficiently and simply to their customers.”