Going beyond one-size fits all: the evolution of mid-market finance

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As the engine room of the UK economy, the continued growth of the ambitious mid-market is essential to the country’s economic stability. But as our new research, Defying Gravity, shows, the traditional finance options that are available to mid-market businesses are far from satisfactory. In fact, 56% of mid-market business leaders believe that the finance environment is not fit for purpose, and three fifths (58%) believe that their company cannot reach its potential without better long-term finance options.

While traditional solutions may be outdated and inadequate, a new wave of finance is becoming available. Indeed, at Mills & Reeve, less than 30% of the work we do in the finance sector concerns traditional bank lending due to a greater number of alternative finance providers entering the market. 

Carving out a new funding landscape

These solutions include headline-grabbing options such as crowdfunding and peer-to-peer platforms (although, with its origins in SME finance, it is yet to be seen whether peer-to-peer will be able to sufficiently scale up to cater for the mid-market). Direct funding methods, such as non-bank direct lenders and debt funds, which provide funds often through a mixture of debt and equity, are also available. 

Lesser-known options could provide excellent finance support for mid-market firms too. For example, insurers and asset managers are able to directly lend to businesses, and they can be more flexible than traditional lenders. The regional devolution plans set out in the Industrial Strategy Green Paper may mean that local authorities and economic partnerships have more funding to make available to mid-market businesses.

Companies with contractually obligated recurring revenue streams arising from software licensing can also access specialist lending products from alternative lenders.

Unlocking finance through technology

New technologies are paving the way for additional finance solutions. Initial Coin Offerings (ICOs), enabled by the rise of cryptocurrencies, are increasingly being considered by corporates and could be valuable to the mid-market. These require investors to subscribe for cryptocurrency tokens, which can typically be used in the business (once developed) and can be traded. 

Millions of businesses are also using e-commerce lenders as a method of raising finance, and technology will no doubt continue to unlock new and innovative ways of funding growth.

The future of lending

Not only are the routes to finance in flux, but so too is the concept of lending. Increasingly we believe that mid-market firms will opt for a combination of finance options depending on the projects they’re undertaking. For instance, they may decide to pursue an ICO for a specific project, direct lending against blue chip invoices and a form of supplier finance or peer-to-peer facility for working capital. This ability to pick-and-choose from a number of options will mean that businesses will no longer need to opt for a one-size-fits-all solution. 

Lending, therefore, will become based upon supporting individual projects and not, as is the case currently, upon the value of the company itself. Instant access to many of these new finance options will mean that mid-market firms can place less emphasis upon putting long-term funding lines in place. This new hybrid approach can finally begin to create the kind of supportive financial environment that will allow ambitious mid-market firms to push forward with their growth plans.

At Mills & Reeve, we help businesses to navigate this ever-evolving and increasingly complex finance environment. The face of funding is rapidly changing; contact one of our experts for help and guidance on finding the right way forward for your business. 

For more information or an information conversation contact:

William Roles.jpg

William Roles, Partner

T: 01223 222461 M: 07771 564547

E: william.roles@mills-reeve.com