Direct lending is the provision of credit directly to small and middle market companies for growth or acquisitions. With mainstream banks reducing their supply of loans, new sources of finance have developed.

Non-bank or direct lending saw a total of 140 European deals in the first half of 2020, compared to 197 for the same period last year, a decrease of 29%.

The latest Alternative Lender Deal Tracker from Deloitte showed deal count dramatically slowing as the COVID-19 pandemic impacted the private debt markets, especially in Q2 when the volume of deals fell by 58%, compared to the same period in 2019.

The majority of the deals were mergers and acquisitions related with 67% of the European deals being used to fund a buy-out. Out of the 447 deals in the last 12 months, 83 deals did not involve a private equity sponsor, which is in line with the previous year.

Deloitte’s deal tracker also revealed that within the United Kingdom, business services have been the dominant user of Alternative Lending accounting for 29% of the total deals, followed by the technology, media and telecommunications sector at 19%.

Floris Hovingh, head of Alternative Capital Solutions at Deloitte, commented: “One impact of the COVID-19 pandemic has been for direct lenders to hit the pause button during the second quarter of this year.

However, they have become very active again in the second half of the year as pressure on deployment catches up and mergers and acquisitions activity rises.

Hovingh continued: “The lending market has become somewhat binary. Companies that have proven to be resilient in the pandemic are much sought after and commercial terms offered are not far off from pre-pandemic times. In contrast, impacted sectors have of course been given a wide berth.

Deloitte is a multinational professional services network with offices in over 150 countries and territories around the world.