SME Capital has processed its first loan, a £1.25m deal, and claims to have a “significant pipeline” in place, with four new loans already listed for investment.
Marketplace lending has infiltrated a wide variety of niches, and yet a gaping hole has been left in the middle of the business lending space. A multitude of online lenders – headlined by Funding Circle – now service the smaller end of the business spectrum, writing loans between £5k and £1m. But very few lenders have taken on the £1m to £25m segment, and it’s exactly this slice of the market that the newly launched SME Capital is hoping to crack.
“Nobody else plays in this market segment,” said co-founder and CEO Antoine Grisay (pictured above), in an exclusive interview with AltFi. Grisay previously worked at ING Bank in London where he focused on bond origination and structuring. The management team also features James Kaberry, former CEO of Pantheon Financial Ltd., one of the UK’s leading IFA groups. Tony Best, former Head of Global Sales at JPMorgan, is non-executive chairman of the company.
SME Capital functions as an online marketplace for mid-market debt, connecting SMEs and their brokers/advisors with institutional investors. Brokers and advisors will often be heavily involved in the process of uploading loan information to the platform. The sorts of deals targeted by SME Capital necessitate a deeper level of data than is made available on platforms that specialise in smaller loan sizes. But the beauty of the platform, according to Grisay and Kaberry, is its capacity to present this depth of information in a smooth and comparable way, and in a fashion that is familiar to traditional fixed income investors.
“SME Capital gets no less information than a bank would in a typical lending situation,” said Grisay. “We effectively obtain very granular credit data on each borrower backed by finance professionals. This includes, amongst other things, detailed balance sheet, P&L, cash flow statements, last three annuals, last 4 quarters, 2 years projections, management accounts, bank statements, a business plan, an asset registry, a management due diligence questionnaire, etc.”
“Additionally, during the life of the loan, SME Capital also obtains quarterly financial and management disclosure from the borrower and their advisor,” he continued. “Our platform presents this information in an intuitive and standardised format across 5 tabs on the platform. The financial data is downloadable in excel which investors can easily use for additional internal analysis and we are building Data APIs that will allow them to run their proprietary software if required.”
The loans themselves are typically sought for the purpose of funding a specific event, such as an MBO or MBI. This differs substantially from what typically drives loan applications at the smaller end of the business spectrum.
Thibault Lancksweert, CFO at SME Capital, believes that the offering is highly complementary to the services of the banks: “SME Capital can help a borrower raise non-bank debt, sometimes simply as a means of diversifying its sources of funding. A typical structure for a borrower would be an overdraft/working capital facility from their core relationship bank and additional long term strategic debt arranged by SME Capital.“
In addition to closing the first of its loans, SME Capital recently brought on board a new shareholder – a Dubai-based family office named DSA Investments, which has taken a 10 per cent stake in the company as part of a Series A fundraise.
We’ve seen a rash of alternative credit funds launching over the past few weeks, as managers look to direct lending as a source of yield in more uncertain economic times. BNP Paribas launched a €500m SME alternative credit fund this week, while both Amundi and AXA Investment Managers have launched new alternative credit offerings. SME Capital represents a different route to market for investors – offering a means of direct access.
Founders Grisay and Kaberry believe that the SME Capital platform is well suited to the needs of traditional fixed income investors, including major European asset managers, pension funds and insurance funds.
“I think it is fair to say that the £1m-£50m space is quite wide for SMEs,” said Kaberry, commenting on the market opportunity. “North of £20m we think the market is quite well served between banks and direct lending funds! However, in the 1-20 space there is relatively little data available on specific transactions but based on the BBA, there is over £110bn of SME debt outstanding with (£65bn of which is in the M space), of which £25bn are new loans approved annually. This doesn’t account for the actual debt funding gap to UK SMEs which, based on various pieces of research and along with various discussions with industry experts, we estimate at between GBP25bn and GBP40bn.”
