The UK private credit market is currently thriving, particularly in the SME and lower mid-market segment. Despite the macroeconomic headwinds, lenders remain highly active, and private credit is now a mainstream source of funding for both growth and acquisitions. In fact, private credit accounted for approximately 77% of sponsor-backed mid-cap financings in the UK during 2024, and this trend has continued into 2025 with strong momentum.

Lower mid-market transactions - typically businesses with EBITDA between £3m and £10m - are increasingly funded by debt funds rather than traditional banks, reflecting a structural shift in the market.

Right-Sizing Leverage for Sustainable Growth

So is it an option for your business? Today’s environment favours disciplined structures over aggressive leverage. For lower mid-market deals, senior debt typically sits at 2.5x to 3.5x EBITDA, with total leverage rarely exceeding 5.0x. Margins have widened - often in the 500-700bps (basis points) range - but lenders are rewarding businesses that demonstrate resilience and cash flow strength.

PIK Options: Flexibility for Growth

One thing for an SME to consider is Payment-in-Kind (PIK) instruments which have become an increasingly relevant feature in private credit deals, particularly for businesses seeking flexibility during periods of investment or transformation. PIK allows interest to accrue rather than being paid in cash, reducing immediate cash flow pressure and preserving liquidity for growth initiatives.

Winning Lender Confidence: Tell the Right Story

Of course, the key to all this is persuading a lender to part with the money. For UK SMEs, securing finance starts with trust – a lender needs to be confident that not only will you make your long-term repayments, but that there is a healthy chance that you will return for more funding as your business continues to grow. These are the basics to consider:

• Financials

It’s important to have solid foundations in the form of strong credit scores and accurate financial records (including audited accounts, bank statements and tax returns) stretching back at least three years.

• Business Plan

Every company needs a consistently updated business plan that reiterates your goals, helps spot potential risks, refines your objectives, and acts as a barometer of progress. In particular, a robust financial model is vital. Although it may seem like a given, getting a financial model wrong – or filling it with the wrong information – can have devastating consequences.

Lenders draw confidence from models that reflect how incoming capital will work in the business, tracking factors such as return on investment and cash burn (equity); or leverage, covenant performance and the cash available for debt service (debt). Transparency is particularly important. Wild, unsubstantiated claims about your sales pipeline or concealing risks to your bottom line simply undermines your case for being a sensible investment opportunity.

• Operations

Operational credibility is equally important. Highlight your business track record, compliance with regulations, legal structures and leadership experience. If possible, offer collateral or explore government-backed guarantees such as the British Business Bank to reduce lender risk.

• Relationships

Finally, build relationships early. Engage with lenders before you urgently need funds, and be transparent about challenges and solutions. Confidence grows when lenders see a proactive, well-prepared business with a clear path to growth.

With over 400 private debt deals tracked in H1 2025 across Europe, the opportunity is clear: by right-sizing leverage, considering flexible tools like PIK, and running a disciplined process, SMEs and private equity sponsors can secure funding that fuels growth and creates real long-term value.

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Dan Martin is a Partner - Business Funding at Shaw & Co.

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