What is Specialty Finance?

Specialty finance can be defined as financing activity that occurs outside of the traditional banking system. The focus is on providing capital to commercial and consumer borrowers inadequately served by mainstream banking channels. Beyond asset-backed, consumer and SME lending, specialty finance also covers esoteric financial assets such as litigation financing, buy-now-pay-later, accounts receivable, merchant cash advances, and equipment leases.

Following the financial crisis of 2008, increased regulation across the ecosystem coupled with unsteady market conditions forced traditional financial institutions to alter their lending policies. The increased capital requirements and risk governance on banks opened the door for alternative finance providers to capitalise on disintermediation opportunities. The emergence of ‘fintech’ companies contributed to fill the gap.

The global private debt market is predicted to more than double from $1.21 trillion to $2.69 trillion in 2026. Direct lending and distressed debt account for 65% of global private debt (Preqin 2022). Specialty finance lending accounts for less than 10% of the total asset class AUM. This is where specialist lenders identify and fund interesting market niches, creating opportunities for accredited investors.

The UK has the most sophisticated and diversified private debt market in Europe and, globally, it sits only behind the US. The UK fintech sector has also cemented its position as the fintech leader of Europe, with London topping the Savills European Fintech Occupier Index 2021. Therefore, the UK is a strong hub for producing appealing specialty finance opportunities.