British Business Bank adds GBP £40m to Harwood fund

The British Business Bank has committed an additional GBP £40 million to Harwood Private Capital as part of the first close of Harwood Private Capital UK Fund II.

The commitment brings total capital across the fund and its co-investment vehicles to about GBP £120 million. It also raises the Bank's total commitment to Harwood to GBP £75 million, following a GBP £35 million commitment to Harwood's first fund in 2020.

Harwood Private Capital provides flexible debt to lower mid-market businesses in the UK. The new fund and its co-investment vehicles are intended to support smaller and lower mid-market private companies pursuing expansion, acquisitions and shareholder transitions.

The move reflects continued demand for non-bank finance among founder-led and family-owned businesses seeking growth funding without giving up ownership. It also highlights the British Business Bank's role in targeting parts of the market where smaller companies can struggle to secure growth and scale-up capital.

Harwood backs businesses with EBITDA of GBP £2 million to GBP £10 million. The wider Harwood Capital Management group manages more than GBP £1.4 billion across public equities, private equity and private debt, according to the figures provided.

The additional allocation is intended to increase the supply of flexible growth capital across the UK. Supporting smaller regional businesses is a central part of the Bank's activity, particularly in areas where traditional lending does not fully meet demand.

Harwood's first fund invested in sectors including digital technology, clean energy supply chains, manufacturing and tourism. One example is Western Marinas, a marina operator in Wales that received backing to restore facilities in Wales and South West England.

That investment helped restore marina sites described as community assets, while supporting local employment and family businesses in surrounding areas. It illustrates the type of lending Harwood is pursuing through debt rather than equity ownership.

Finance gap

Smaller UK companies often face limited funding options when they reach the point of expansion, succession planning or acquisition. Traditional bank lending can be restrictive, while an outright sale or private equity backing may not suit owners who want to retain control.

Harwood's model centres on providing debt finance tailored to those situations. The firm says its approach is designed for founder-, family- and management-owned companies, including businesses seeking to fund growth, management buyouts or ownership changes.

For the British Business Bank, the transaction fits a broader policy goal of improving access to finance for smaller businesses across the UK. In the latest year cited, the institution said it supported smaller businesses in accessing GBP £9.4 billion of finance through public funding, private capital mobilised alongside it and lending guarantees.

"Many smaller businesses continue to face challenges accessing the flexible growth capital they need to scale, invest and realise their ambitions. Harwood has developed a strong track record of providing tailored financing solutions to UK SMEs, particularly those that have not been backed by private equity. Our commitment will help increase the availability of growth capital for businesses, support economic growth and create jobs throughout the UK," Adam Kelly, Managing Director, Debt & Regional Funds, British Business Bank, said.

Fundraising push

The new commitment also gives Harwood support as it raises its second UK fund. A first close of around GBP £120 million, including co-investment vehicles, gives the manager capital to pursue new deals in a part of the market where specialist lenders have been expanding.

Private credit managers have become more active in financing smaller companies as banks adjust their lending appetite and business owners seek alternatives to equity dilution. In the lower mid-market, these lenders often position themselves between mainstream bank debt and private equity investment.

The latest commitment strengthens a relationship that began with the launch of Harwood's first fund. The manager says many owner-managed businesses remain underserved by conventional lenders even when they have established operations and a clear route to growth.

Haseeb Aziz, Managing Partner, Harwood Private Capital, said: "The British Business Bank has backed Harwood Private Capital since our first fund, and this renewed commitment reflects the strength of that partnership. Founder and family-owned businesses are the backbone of the UK economy, yet many are still underserved by traditional lenders whilst wishing to maintain ownership control. The £120m of committed capital allows us to keep providing the flexible, partnership capital these businesses need to grow, make acquisitions and manage ownership transitions on their own terms."