Study: Mid-markets using large corporate financing

Approximately four-fifths of respondents said that they were “positively inclined” to use non-bank lending.

Fast growing mid-market businesses have more access to financing options that had previously only been available to large corporates, according to new research from financial advisor Grant Thornton.

Grant Thornton's Capital for Commerce report, which surveyed 100 mid-market companies and 100 non-bank lenders, found that direct lending to mid-market companies is driving innovation and building a new asset class for investors.

Shaun O’Callaghan, UK head of debt advisory at Grant Thornton, said: “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.”

Almost 80 percent of respondents said that they were positively inclined towards non-bank lenders, which are defined as financial firms that lend to businesses, but do not accept deposits. The finding demonstrates “a clear acceptance of the opportunity which the rise in non-bank lending presents for raising finance and providing capital for commerce”, according to a statement. 

Slightly more than 60 percent of respondents indicated that they had used non-bank lending in the past. Of those, 56 percent had used credit funds, 49 percent had tapped private equity firms with direct lending arms, another 40 percent had used junior debt funds and 39 percent had used asset backed lenders.

However, many companies remain hesitant. 79 percent of respondents who said they had not used non-bank lenders indicated that they would not consider doing so in the future because of higher interest rates, focus on returns and involvement in corporate management.

Roughly four-fifths (82 percent) of non-bank lenders, which include private equity, distressed, credit and hedge funds, cited corporates’ unrealistic expectations as the reason why potential deals fail to be completed.

O’Callaghan 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.”