Exploring the rise of private credit: New horizons for mid-market financing

Private credit is experiencing a significant surge, revolutionising opportunities for investors and mid-market companies alike. This asset class encompasses a wide array of financing options, extending from energy transition and real estate to corporate lending, each offering unique benefits across the risk spectrum.

Traditionally, up until about 2018, mid-market debt financing options were limited, with only a few private credit funds available. During this period, private equity growth capital dominated due to its accessibility, competitive pricing, and widespread availability. It was a favourite route for M&A advisors, known for delivering desirable outcomes for clients. However, the landscape of financing has evolved dramatically since then.

Today, the rise of private credit is reshaping the competitive dynamics, challenging both traditional banking and private equity with its flexible, innovative financing solutions. Originally seen as a niche alternative for acquiring additional leverage or funding unique business models requiring adaptable structures, private credit is now a strong contender alongside conventional financing options.

The appeal of private credit lies in the optionality it provides, although it's not suitable for every scenario. Typically more expensive than traditional bank loans - although the cost gap is narrowing - it might not be the best fit if only low leverage is needed. For corporates, the decision between opting for private credit or equity isn't solely about minimising shareholder dilution. Factors like the strategic input from board-level challenges and the networking benefits from a private equity investor continue to hold significant value.

For M&A advisors, the expansion of private credit has unlocked more diverse and innovative deal structuring opportunities, previously limited to larger-scale transactions. In some cases, the availability of private credit funds has been crucial, enabling deals that might not otherwise have been feasible. Despite its growing role, the full potential and benefits of private credit remain underappreciated, indicating a need for further education and suggesting that its growth trajectory is far from over.

At Heligan, we maintain robust relationships within the private credit sector and have collaborated with various funders on numerous successful deals. If you’re considering exploring debt options for your business - or for a client - please reach out. We’re here to help navigate the landscape and unlock potential opportunities for your enterprise.