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Deloitte report shows small European firms successfully dealing with bank cuts through financing from alternative lenders

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February 24
1:23 PM 2014

The smallest firms in Europe are able to get past reductions in bank lending by getting their funding from alternative sources, Bloomberg reported citing a Deloitte LLP report.

The data said that in the final quarter of last year, funding from non-traditional lenders increased to 56 deals. This represented a rise of over three times the number of deals posted in the first period of 2013. According to Deloitte, most of the new debt was used to finance buyout transactions, the report said.

Although large businesses are now in a better position to get funding from capital markets, commercial lenders are cutting back on lending in a bid to preserve capital. It is this gap that new players are now trying to fill. As bankers back away, buyout companies, venture capital funds, insurance firms and pension plan providers have risen to the occasion to offer financing, the report said.

Nedim Music told Bloomberg, "Some alternative lenders will now look to lend to businesses with less than 10 million euros of Ebitda. Alternative lenders are becoming more established and providing debt for a broader range of transactions." Music is the Manager of UK Debt Advisory at Deloitte in London, the report said.

Last month, Barclays Plc forged a partnership with BlueBay Asset Management Llp to offer direct lending services to companies in the UK. The fund will provide what are known as unitranche loans wherein a credit facility is created by the combination of senior and junior debt. It will need to be repaid at once when the loan matures. Barclays is the second biggest lender in the UK in terms of assets, the report said.

Music added, "Fund partnerships with banks can be a win-win for all. The funds don't have large origination desks, so working with banks helps them get new business."

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