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Palio targets £250m for UK debt fund

Palio Capital Partners is trying to fill the lending gap for UK SMEs by providing senior debt and mezzanine loans with its new fund.

Palio Capital Partners is raising a fund that will offer UK small-to-medium-sized enterprises senior debt and mezzanine loans, at a time when companies in that bracket are struggling to obtain funding from banks.

The firm says it is a third of the way to a £100 million (€120 million; $158 million) first close for its Superflex Fund I, which will target businesses with an enterprise value of between £10 million and £100 million.

The move follows the success of the model in the US where the debt financing market is valued at around $100 billion, Palio said. Superflex is targeting a final close of £250 million, according to the firm's website.

The non-bank finance model has received support from European investors, with the European Investment Fund (EIF) already pledging a cornerstone investment to Palio's fund.

Palio claims between 2012 and 2016 there will be an estimated £25 billion of debt funding and refinancing needed for SMEs in the UK, where despite multiple rounds of quantitative easing by the Bank of England banks are still failing to lend. UK banks are expected to further reduce their provision of senior debt as they redress their balance sheets in the wake of regulations requiring them to hold more capital against such loans.

Commenting on the credit supply gap in the UK, chief executive and founder of Palio Mike Henebery said: “The SME market is the engine-room of the UK economy but the major constraint on the growth of these businesses is the scarcity of debt finance. The government has recognised this issue and recently launched the Business Finance Partnership to ease the flow of credit by investing £1 billion through managed funds that lend directly to UK SMEs.  We fully support the government’s plans and have been invited to participate in this project which we see as a force for good.”