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Direct Lending Investments

Lend to profitable private companies in return for high yields and a share in capital growth. Returns from direct lending investments are usually through fixed income payments and there is often some security against assets. Target net returns to our clients are 9%-15% annual yield, totalling 1.5x-2.5x capital invested over the term of the investment.

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  • 1.5-2.5xtarget net returns
  • 9-15%annual yield
  • 1-5year duration

Lending to SMEs

UK SMEs are turning away from traditional bank lending to grow their business. After the financial crisis in 2008, high-street lenders began to reduce their exposure to this area of the market. The global pandemic has further accelerated this trend, with a 10% reduction in ‘normal’ lending in 2020.

This has created an excellent opportunity for private wealth and alternative debt providers to step in and cherry-pick the most appealing opportunities. These are typically in companies with a positive trading track record, good management, robust plans and a combination of low gearing and/or asset security to support attractive returns for the level of risk being taken. It is these opportunities our Direct Investment team focus on bringing to our clients.

Our focus and and approach

We look for high-quality SMEs, with professional management, strong cashflows and a credible exit plan for the debt package we provide. We can offer finance of between £3m - £12m across the debt risk/return spectrum, from senior debt all the way through to mezzanine finance. And, we will always seek to secure equity participation, where possible, in order to target any capital growth. The typical length of a loan is anywhere between 12 months and five years. 

Investments are structured to suit each business and there are no predefined constraints imposed.

We also provide debt to residential property developments, in uni-tranche or mezzanine formats. This is typically at the later stages of development, when value has become embedded, and often will be to enable a developer to generate an early release of anticipated profit from a development.

Access to direct lending investments in established companies is not easily available to private investors, but through Connection Capital you can choose to invest in whichever of our investment opportunities you wish, in multiples of £25,000. 

Direct lending investment structures

Private debt, including direct lending investments, offers investors a potentially lower risk exposure to private companies than an equity investment (n.b. it's important to remember that there will still be some investment risks - read more here).

Our direct lending investments take the form of debt instruments with a combination of paid and rolled interest, along with warrants or other mechanisms to secure value upon redemption or the ultimate sale of a company.

There is no ‘one size fits all’ and we work with companies to determine the best overall package for their circumstances.

Our track record in direct lending

We have completed 10 direct lending investments, seven supporting UK companies and three supporting property developers.

We are willing and able to support all our investments, whether labelled equity or debt, with access to our network of clients and we look for each company to embrace the benefits of an independent director and the toolkit of measures which are available via our private equity heritage, to the benefit of all shareholders.

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Our SME Investment Team

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