Palio Capital deploys non-bank lending model for UK market

Palio Capital Partners, a London-based fund, is developing a non-bank financing model using senior debt and mezzanine loans for the SME market in the UK.

With the constrained lending capacity of mainstream banks in the UK, there is surging demand for non-bank finance, with an estimated £25bn of debt funding and refinancing needed for small and medium sized businesses between 2012 and 2016.

The debt financing market has had a successful track record in the US, where it is valued at around $100bn. In the UK, Palio will target the lower mid-market, or businesses with an enterprise value of between £10-£100m. 

Palio’s lending model has been well received by European investors. The European Investment Fund, has pledged a cornerstone investment to Palio’s Superflex Fund I LP (Superflex), taking the fund a third of the way to its first close of £100m, despite the challenging fundraising environment.

Mike Henebery, CEO and founder of Palio, comments: “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 SME’s.  We fully support the government’s plans and have been invited to participate in this project which we see as a force for good.”

Jerry Wilson, CIO of Palio, said the new fund will allow investors unprecedented access to superior risk-adjusted returns. “There is an imbalance between demand and supply of senior debt for private equity deals and this will result in higher pricing and better overall lending terms, giving the asset class a very favourable risk-return profile.”

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