Specialist lenders are looking for new ways to raise capital and keep up with growing loan books, according to the latest Interpath Specialist Lender Survey.
The research found that over 90% of specialist lenders planned to renew, amend or increase their debt facilities in the next two years.
More than half said they were considering a full or partial exit within five years as merger and acquisition expectations increased and shareholders looked to cash in.
Stuart Mogg, managing director and head of financial services capital and debt advisory at Interpath, said: “The specialist lending sector has achieved remarkable success in recent years fuelled by the growth of capital solutions.
“As loan books grow, there is a rush to secure capital that can fuel that business amidst an increasingly competitive market. Lenders are capitalising on lower margins, reduced fees, and greater flexibility, as well as offers from some funders for additional financing for non-performing loans, which makes an attractive proposition that enhances liquidity and risk management for lenders.
“The substantial demand to refinance and take on new facilities, as well as the need for equity, also reflects the importance of maintaining a flexible and resilient capital structure through a diverse capital stack.”
Mogg added: “As history has proven, those that have planned and executed financing for the long term have tended to win in their respective sectors.”
The research also found founder-led businesses still had a major presence, making up 80% of capital stacks among those surveyed.
More than half said they were looking at an exit through mergers and acquisitions (M&A) in the next five years, including just over one in 10 in the next two years.
The survey also revealed that institutional and private equity investors were present in 25% and 20% of lenders’ capital stacks, showing they could play a bigger role in the future as the market consolidates.
Nick Parkhouse, managing director and head of financial services deal advisory at Interpath, said: “The findings of our survey paint a picture of a sector in transition.
“Founders, management teams, and high net worth individuals are deeply entrenched in the funding structures of specialist lenders, representing the strong alignment between leadership and capital in order to drive growth.
“However, there is a clear signal that M&A activity will start ramping up in the coming years and we have already started to see green shoots appear with an increase in interest from buyers.
“Institutional investors and private equity will have an important role in funding models as consolidation rises the agenda in what is a fragmented market.”
Additionally, research showed that macro-economic stress was still a top concern for lenders, with 63% saying it was one of their top three challenges in 2024 and for the year ahead.
The number who named it as their single biggest threat dropped to 23% for 2025, while competition became the main challenge for a quarter of lenders.
Mogg said: “Clearly competition is on the minds of industry leaders, and it is starting to eclipse the ongoing concerns over economic turbulence.
“This underlines the importance of building resilient and robust capital structures that also have flexibility baked in. Lenders need to have the capacity to pivot in their capital strategies, such as using public markets when they are open and economical to do so.
“However, this can’t be the only capital source and businesses in the sector need to be ready to embrace new ideas and structures when presented.”
Rob Tanna-Smith, managing director and co-head of northern europe ABS at J.P. Morgan, said: “One of the themes evident in the data is that strong and trusted institutional funding relationships remain key to Specialist Lenders, ensuring smoother negotiations, flexibility in amendments to the facility, and long-term collaboration.
“In our view, this signals that the specialist lenders and institutional funders who have invested in forging strong long-term relationships will be well-positioned to outperform others who take a more transactional approach during times of increased market turbulence and uncertainty.”
Ben Tucker, securitised products group sales at J.P. Morgan, said: “The specialist lending sector is at a pivotal moment, with both challenges and opportunities on the immediate horizon.
“As lenders navigate the complexities of macro-economic pressures and increased competition, the importance of strategic partnerships and innovative capital solutions cannot be overstated.
“With over a quarter of lenders needing to raise equity and nearly all respondents looking to raise or refinance debt in the next 2 years, capital providers are poised for a bustling period ahead.”
Tucker added: “Flexible funding, both at a senior and junior level, will be critical for the sector, and this comes through nurturing longer term partnerships designed not only to withstand challenging times but also to flourish during periods of growth and prosperity.”
