Liquidity rebuilds in mid-market SMEs and real assets

Financing conditions in the UK mid-market have gradually stabilised since April, as banks and alternative lenders re-engage with lower to mid-sized SMEs and real estate borrowers on the strength of fundamentals. Liquidity is improving in parts of the market where business models and asset profiles offer resilience to external shocks. In these segments, lender competition is intensifying, driving some margin compression, even as broader credit conditions remain cautious. 

While the macro backdrop remains unsettled – shaped by elevated gilt yields, shifting trade alliances, supply chain disruption, and geopolitical tensions – the mid-market is showing signs of recovering momentum. Some lenders are retreating from large-cap transactions and moving into the lower mid-market, where deal flow is building and competition is less concentrated. Larger lenders have a competitive advantage due to deeper capacity and the ability to offer lower pricing, prompting some peers to seek origination opportunities further down the market. Mid-sized lenders previously focused on £10m – plus EBITDA businesses are now targeting smaller transactions, particularly in the £1-2m range. This shift is opening new financing opportunities for growth-oriented SMEs with lenders who had previously been out of reach.

Capital is gravitating to strategic themes

UK mid-market financing activity is currently centred on refinancing, with selective development and acquisition-led deals also picking up. Each deal stream is increasingly shaped by three broader strategic lending themes – venture-backed SMEs, real asset-backed and alternative lending, and bespoke complex financing – aligned with lender mandates, risk appetite, and borrower preparedness. 

Refinancing remains the dominant activity, as PE-backed SMEs seek to unlock equity or extend hold periods in a market where exit valuations are often elusive. With limited disposal routes and wide bid-ask spreads, sponsors are increasingly returning to debt markets to refinance. IRR-driven debt funds are also actively deploying capital, as elevated base rates make return hurdles achievable – even with thinner margins.

From a real estate perspective, selective development and acquisition financing are also building momentum, supported by lenders with greater motivation, after many undershot deployment targets in the first half. Development loans are being advanced to well-positioned schemes led by experienced sponsors or those with visible institutional support. Acquisition finance is re-emerging in specific cases, particularly bolt-ons or opportunistic purchases where pricing dislocation appears to have overshot fundamentals. Beneath these deal types, three investment themes are drawing considerable lender interest.

Venture Debt and VC-Backed SMEs

The first theme is the cautious reactivation of the venture debt market. Since the collapse of Silicon Valley Bank (SVB), once the UK’s largest provider of debt to VC-backed firms, growth-stage companies have faced fewer traditional financing options. A significant portion of the businesses remain well-capitalised but are seeking interim liquidity to defer equity raising until market conditions improve. Lenders are adjusting their underwriting to account for founder-led businesses and growth-oriented KPIs, rather than traditional profitability metrics. Strong institutional equity support in the lower mid-market is drawing renewed interest from lenders, who are recalibrating risk around growth trajectories and the credibility of backers – recognising that profitability is not always the clearest signal of resilience.

Real Assets and Alternative Collateral

Second, there is renewed appetite for financing real assets across segments like logistics, digital infrastructure, and sustainability-linked operating platforms. Lenders are favouring assets where there is a mix of institutional backing, income stability, inflation resilience and sustainability alignment. Some lenders with broader mandates are expanding to include non-traditional real assets – such as art, collectibles, and niche operating businesses with durable cash flows. These marginal exposures offer portfolio diversification and allow capital providers to pursue yield without excessive credit risk, particularly when valuations are well underwritten.

Complex and Bespoke Financing

Finally, a growing share of mid-market deal flow involves complex or bespoke capital structures. These may include assets with a thin equity contribution in the capital structure, unconventional asset classes, distress scenarios, or hybrid ownership models. For well-prepared sponsors, creative structuring is increasingly unlocking capital that standardised financing cannot. This applies not only to acquisitions but also to recapitalisations and transitional asset strategies, provided sponsors can present a credible plan to de-risk the balance sheet over time. Flexible lenders are selectively engaging, applying heightened structural discipline and rigorous diligence. A trend is emerging where traditional private equity GPs are either moving to a deal-by-deal capital raising environment or seeking to initially use their own capital for new deals – as they look for more flexibility on investment mandate and hold periods. 

Conclusion

As the second half of 2025 approaches, refinancing activity is expected to accelerate, supported by the Bank of England’s easing interest rate path. Borrowers facing refinancing deadlines are returning to the market, while lenders under pressure to meet deployment targets are broadening their reach. But the ground could shift fast – geopolitical flare-ups or a gilt yield jump could see lenders hit pause again, stalling deals overnight, while a re-acceleration in trade wars, inflation, or supply chain disruptions could stifle liquidity, reprice risk, and abruptly tighten refinancing windows.

Rapid shifts in macro conditions can abruptly close refinancing windows – reinforcing the need for borrowers to prepare across multiple scenarios. BTG Advisory is ideally placed to help firms navigate their capital requirements. In a market increasingly defined by diligence depth and asset resilience, borrower preparedness ahead of financing negotiations is becoming a decisive success factor. Our advisory specialists work with a range of borrowers and PE owners to refine business plans, prepare due diligence materials, and optimise capital structures that are aligned to lenders’ evolving preferences and risk considerations. If you would like to discuss your company’s options in confidence, do not hesitate to get in touch with us today.