Alternative SME lenders and how they worked

In September 2013 Björn Lindvall traced one route by which non-bank capital reached UK businesses. Teams experienced in leveraged buyouts had raised money from institutions to fund acquisitions. When deal activity slowed, some funds began lending directly to trading companies. His article argued that borrowers often struggled to discover these providers.

Three kinds of funding arrangement

A direct lending fund invests capital committed by its investors. Its investment mandate may specify loan size, industry, leverage and maturity. An asset-based lender focuses on a borrowing base such as eligible invoices. A large invoice might contribute less to availability if it is disputed, overdue or concentrated with one customer.

Marketplace lending

A marketplace connects funding providers and borrowers. Its role may include origination, assessment or servicing. The historical Stirling Chase transaction illustrates a business acquisition financed through ThinCats. The borrower, arranger, platform and provider of funds can have distinct roles.

To compare two offers, record the funding actually available, draw conditions, repayment profile, fees and security. An asset-backed line that fluctuates with invoices serves a different cash need from a term loan. The working capital guide explains how to identify that need.