For UK and European businesses in the lower mid-market, the last two years have quietly shifted in their favour. Record sums are being raised for private credit, banks are pulling back from exactly the kind of lending this segment needs, and a generational wave of succession is pushing specialist lenders to actively look for deals this size. The mega-funds making headlines are chasing transactions much larger, which leaves more room, not less, further down the market. Here is why, and what it means for businesses weighing up their options in 2026.
By Scott Townsley · Investment Director · 10 min read
The bottom line, up front
- The capital: European private credit fundraising hit a record £49 billion in the first nine months of 2025 alone, up 14% on the year before. That capital has to find a home, and a growing share of it is earmarked specifically for smaller, specialist strategies.
- The gap: banks still handle around 70% of corporate lending across Europe, but Basel IV is pushing them further away from the smaller, more bespoke lending that lower mid-market businesses typically need. That gap doesn’t close itself; it gets filled by lenders built for this size of deal.
- The opportunity: with 86% of UK private-sector businesses family-owned and a wave of succession-driven ownership change under way, demand for patient, relationship-led capital has rarely been higher, and there is a genuinely growing pool of lenders whose entire business model is built around meeting it.
What counts as the lower mid-market?
Broadly, businesses with EBITDA of roughly £5–30 million, or debt requirements in the £20–85 million range. These tend to be founder-run, family-owned, often first-time institutionally backed companies that are too complex for a standardised bank facility. As this article sets out, that is exactly the size that a growing number of specialist private lenders are built to serve.
Why there’s more capital chasing this end of the market than ever
Start with the headline number, because it matters: European private credit fundraising hit a record £49 billion in the first nine months of 2025, 14% ahead of the previous full year, with Europe’s share of global private debt fundraising climbing from roughly a quarter to over a third. Yes, some of that capital is landing in the mega-funds; Ares Capital Europe VI alone closed at a record €17.1 billion (around £14.6 billion) in 2025. But the headline numbers only tell half the story. Many European managers are deliberately running smaller, specialist strategies alongside their flagship funds, precisely because they recognise there is a distinct, underserved opportunity in financing businesses this size and a substantial origination opportunity in this part of the UK and European market.
Put simply: there has never been more capital looking for a home in UK and European private credit, and a meaningful and growing slice of it is aimed squarely at mid-market businesses.
Capital and Room to Grow in UK & European Private Credit
£49bn
Record European private credit fundraising in the first nine months of 2025 alone, up 14% year-on-year.
£340bn
Total European private credit assets under management today, a fully scaled, still-growing institutional asset class.
~70%
Share of European corporate lending still done by banks, the runway private credit still has to grow into as Basel IV reshapes bank balance sheets.
Source: Withintelligence Private Credit Outlook 2026; Allianz Global Investors, “Private Credit — Investors Are Turning to Europe.”
What this means for you
The mega-fund headlines can make private credit feel like a game reserved for large corporates and their sponsors. It isn’t. A record amount of capital is being raised across the UK and Europe, banks are retreating, and a rising number of managers are building dedicated strategies for businesses at this end of the market.
Basel IV: bank caution is private credit’s opportunity
Banks becoming slower to say yes, more conservative on leverage, or simply less interested in facilities that don’t fit their standard lending criteria is becoming a structural trend. Banks still account for roughly 70% of corporate lending across Europe, but as Basel IV is implemented across the UK and EU over the coming years, they are expected to shed further exposure to smaller, more bespoke credits that consume disproportionate amounts of time and regulatory capital relative to their size.
For businesses at this end of the market, that is not necessarily bad news. It is exactly the vacuum that lower mid-market private credit specialists are built to fill: lenders who can hold a £20–85 million facility on their own balance sheet, negotiate terms directly with the borrower, form an educated, non-standardised view, and move at the pace required by these businesses.
The succession wave: why lenders want exactly this kind of deal
Around 86% of UK private-sector businesses are family-owned, and research from the think tank Ownership at Work (backed by the Federation of Small Businesses) found that more than half of business owners plan to sell part or all of their shareholdings within the next decade. More than two-thirds of older SME owners, representing some 120,000 UK firms, intend to exit within ten years; of those, 43% (roughly 51,600 businesses) expect they will need to find new external owners rather than pass the business on within the family. UK family businesses contributed £422 billion in taxation in 2023 alone. The same pattern is playing out across France, Germany and the wider EU, where a similarly ageing cohort of founder-owners is approaching retirement.
For a lender built to serve the lower mid-market, that is precisely the kind of transaction they exist to finance: a founder-led buyout, a family recapitalisation, a first-time sponsor acquiring a platform business. Businesses approaching a succession point, an ownership change, or simply in need of growth or acquisition capital are not a hard sell to this part of the market; they are, in essence, the reason it exists.
Why the crowd can’t follow the money down here
It is fair to ask why, if the opportunity is this clear, the biggest and best-capitalised managers in London, Paris and Frankfurt haven’t already crowded in on it. The answer is refreshingly simple: they largely can’t, not efficiently. A £1.7 billion European direct lending fund needs to deploy that capital into a manageable number of transactions, which means each one has to be large enough to move the needle for a fund that size. A £10 million facility, however sound the underlying business, simply doesn’t move that needle, and underwriting it takes almost as much diligence effort as underwriting a business ten times larger, without the fee income to justify the work.
That is precisely why larger funds have traditionally not been meaningful participants in the lower mid-market, not because the businesses are weaker, but because the mechanics of deploying billions of pounds efficiently simply don’t work at this deal size. The result is a segment that has never been swamped by the same wall of capital competing for attention at the top of the market: less noise, more genuine interest from lenders who specialise in exactly this size of deal, and real room to negotiate a structure that fits the business rather than a template built for someone else’s.
So who is actually borrowing down here?
Not a niche cast of struggling small businesses. Instead, a broad and often overlooked set of UK and European borrowers who happen to sit below the size threshold that scale capital cares about:
- Succession-driven sellers: founder-owned businesses reaching an ownership transition without an obvious institutional buyer already in the room.
- First-time and lower mid-market-focused sponsors: smaller UK and European private equity houses buying platform businesses too small to interest the mega-buyout funds, and needing debt partners who move at the same scale.
- Consolidation and roll-up platforms: bolt-on acquisitions in fragmented, regionally concentrated sectors.
- Businesses outgrowing a bank relationship: capital-hungry companies, with a degree of complexity (cross-border operations, seasonal working capital, a recent recapitalisation) that domestic bank facilities were never built to serve, especially as UK and European banks continue to retrench under Basel IV.
What changes for you: lower mid-market vs. core & upper middle market lending
| Feature | Core / upper middle market | Lower mid-market |
|---|---|---|
| Typical facility size | Often £85m and up, one of many names in a large syndicate book. | Broadly £20–85m, a genuine priority for the lender, not a rounding error. |
| Who you deal with | Larger execution teams, often across multiple syndicate members. | Direct access to the people actually making the credit decision. |
| Structure & flexibility | More standardised terms, shaped by syndication requirements. | Bespoke structuring built around the business and its cash flows. |
| Speed | Can involve longer committee and syndication processes. | Typically faster, with greater certainty once a lender commits. |
| Relationship over the life of the loan | Diluted across a large syndicate; less continuity. | A genuine ongoing relationship with a lender who knows the business. |
| Level of interest from lenders | Intense competition among mega-funds for the same large names. | A growing number of specialist lenders actively seeking deals this size. |
Four moves worth making now
- Don’t assume a bank’s “no” is the market’s answer. A declined or slow-moving bank facility often says more about capital rules and Basel IV than it does about the underlying business.
- Start the conversation before the money is needed. Whether it’s growth capital, an acquisition, or a succession-driven recapitalisation, the best-structured deals are negotiated from strength, not under time pressure.
- Get the numbers deal-ready. A clean, well-organised information pack is what lets a specialist lender move quickly and offer sharper terms.
- Look for lenders built for this size, not general practitioners. A manager with genuine lower mid-market experience, local presence and the ability to hold the whole facility will move faster and structure more sensibly than one for whom the deal is an afterthought.
So: what does this mean if you’re raising capital in 2026?
It would be easy to read the headlines (record fund closes, fierce competition among the biggest managers, banks tightening up) and conclude that capital is getting harder to find. For businesses at this end of the market, the opposite is closer to the truth. The parts of the market grabbing the headlines are chasing deals this segment was never competing for in the first place. Further down the market, a genuinely deep and growing pool of capital, run by lenders who specialise in exactly this size of business, is short of good deals to finance, not the other way around.
None of this means every business will get funded, or that terms are simply handed out. Lower mid-market lenders are selective, and a clean, well-prepared business will always be treated differently from a rushed one. But the structural backdrop (record fundraising, retreating banks, and a decade-long wave of succession-driven demand) is as borrower-friendly as it has ever been for UK and European businesses of this size looking for capital.
For businesses sitting in that gap (too complex for a standardised bank product, too small to interest a mega-fund, approaching a succession point, or simply in need of growth or acquisition capital), this is genuinely a market worth engaging with. The best time to start that conversation is before the money is needed.
Scott