SME lending: Small is beautiful for banks and non-banks
Lending to small firms in Europe has traditionally been the preserve of the banks; they have the networks and relationships to originate deals for these types of clients, but non-banks now have this business firmly in their sights. And as more banks and funds start to cooperate in this space, the latter can expect to appear more frequently in transactions for Europe’s small and medium-sized enterprises.
According to mid-market advisory firm DC Advisory, there were 113 mid-market deals in the UK in 2016. There were 116 in France, 42 in Spain and 81 in Germany and Switzerland. A closer analysis of UK activity reveals the banks and funds all seemingly targeting the same type of customer in that market.
Around 39% of the UK deals that HSBC lent to were leveraged buyouts with an ebitda smaller than £25 million and 26.7% were refinancings to firms of a similar size. That means that 65.7% of the bank’s lending in the mid-market was to small firms. For RBS, the focus is even greater: 43.9% of its lending was to small LBOs and 31.7% to small refinancings – 75.6% of the total.
Just 10.7% of HSBC’s lending was to LBOs with an ebitda greater than £25 million and just 2.4% of RBS money went to this sector. At Lloyds, a full one-third of business was lending to LBOs smaller than £25 million.