The lender field was already plural by 2020

As the decade opened, a UK company raising £3–15m of debt already faced a plural market, not a single high-street relationship. Direct-lending funds had completed 1,937 tracked European deals since 2012 with the UK their largest market; more than half of finance-seeking SMEs were already going beyond the big-five banks; and Bank Rate sat at 0.75%. The structural shift was done before Covid. The pandemic interrupted it, then accelerated it.

This is the series’ baseline: where the market sat in February 2020, on the eve of the shock that followed. It is worth fixing that baseline precisely, because the story usually told is that the pandemic reshaped how mid-sized companies borrow. The data from the year before says the reshaping had largely happened already. What Covid did was interrupt a trend that pre-dated it, and then, through the scheme lending, hand it a second wind.

How much non-bank capital was already in the market?

Enough to matter. On Deloitte’s Alternative Lender Deal Tracker, the direct-lending funds, a class of lender that barely existed a decade earlier, had completed 1,937 primary European deals since Deloitte began counting in late 2012, drawn from a survey of 55 lenders that is a sample, not a census, so the true figure is larger still. Of that book, 732 deals were British. This was no longer an emerging asset class a CFO could reasonably ignore; it was a standing pool of flexible, non-bank debt with a track record a lender could point to.

The geography is the part a UK borrower should read twice. Direct lending is often filed as a Continental or American phenomenon, but in the twelve months to mid-2019 the United Kingdom accounted for 38% of European direct-lending deals: more than France and Germany combined, and the single deepest national market on the continent. The flexible money was not somewhere else. It was here, and it was doing more deals in Britain than anywhere.

Were borrowers actually using the wider field?

They were. The British Business Bank’s February 2020 markets report recorded that, for the first time, more than half of smaller businesses that sought finance in 2019 approached a provider other than the five main banks. That is the demand side catching up with the supply side: the alternatives existed, and borrowers had started, in the majority, to use them. Underneath it, the licensing reforms of 2013 had let more than forty new banks into the market by 2019, around half of them challenger or specialist lenders serving businesses.

The clearing banks, meanwhile, were standing still in aggregate. Gross new bank lending to smaller businesses was £56.7bn in 2019, down slightly on the £57.7bn of 2018 and the lowest for five years, on Bank of England data. A flat-to-falling core bank channel against a growing, diversifying periphery is the whole shape of the pre-Covid market in one line: the banks were not the market any more, even if the habit of treating them as such had not fully caught up.

What did the cost of money look like?

Benign, and boring — which was the point. Bank Rate had come off its brief 0.25% post-referendum low, risen to 0.50% in late 2017 and to 0.75% in August 2018, and then sat there. Entering 2020 it had not moved in eighteen months. For a borrower, cheap and stable base rates meant the variable that actually determined the cost of a facility was not the Bank of England but the margin a given lender chose to quote. And, with the field as broad as the deal data show, the spread between the best and worst quote a company could obtain.

What it meant for a £3–15m borrower

The practical reading, from the desk, was already the one it is today. The supply of debt to a mid-sized company had fragmented across banks, challenger and specialist banks, direct-lending funds and asset-based lenders, each with its own appetite and its own price. In that market the cost of going to a single lender, usually the relationship bank, is not the margin it quotes; it is the better terms, larger facility or looser covenant you never saw because you never asked the lender who would have offered them. Cheap base rates did not change that arithmetic. They only made the margin, and the process that compresses it, the whole of the game.

The field, well before the pandemic, had already become the plural, competitive market that makes running a process worthwhile. The years that followed tested that market hard. They did not build it — it was already here.