For a large proportion of SMEs, the cookie-cutter solutions offered by traditional banks are not an option to acquire capital when a company most needs it. Alternative lending structures continue to gain prominence, particularly among non-bank lenders. One such structure that deserves attention is the club deal—a specialised form of syndicated lending that offers unique advantages to both lenders and borrowers alike.
Club loans are characterised by a much smaller and more equitable group of participating lenders than other forms of syndicated loans. Unlike traditional syndication, where a lead lender typically controls the majority stake and dictates terms, club deals feature multiple lenders who stand on relatively equal footing in several key aspects, including capital contribution, fee structures, and decision-making. The club of lenders will also commonly make use of collective documentation and negotiation.
Club deals hold several advantages for borrowers. Approaching a group of lenders can increase the total amount of funding that a company can attain. The use of collective documentation reduces the administrative burden on the borrower. This can lead to reduced legal and administrative costs and help the process to run quicker, increasing the chance of success. Because lenders are typically on equal footing, it is much easier for the borrower to navigate the power dynamics of the negotiation process. Another key advantage is the fact that the borrower is exposed to a wider pool of sector expertise that can lead them in making the most of the funds deployed.
Similar to borrowers, lenders can participate in large transactions that may normally fall outside their maximum lending scope. Lenders can take advantage of the expertise of other lenders in the club to gain exposure to sectors they had not entered into previously, diversifying their portfolio risk in the process. Furthermore, each lender can maintain a direct relationship with the borrower, which opens the door to follow-on funding in the future, something which would not be available to a junior lender in a typical syndicated deal.
Finally, lenders can take on riskier deals as they have the comfort of not being subordinate to other lenders in a club deal.
Club deals are often used in the development space, as these projects often require very large amounts of funding and have a risk profile that lenders do not want to take on their own. Where a company wants to fund operations or projects across different jurisdictions, a variation on a club deal can be arranged where a group of lenders, one in each country, come together to provide funding to a company. Another key area for club deals is M&A transactions, particularly MBOs, where it may be rare for one financier to be able to provide the funding required for such large transactions.
As non-bank lending continues to expand its market share, club deals represent an elegant solution that bridges the gap between bilateral loans and full syndications, offering borrowers increased capital access while maintaining the personalised approach and flexibility that makes alternative lending attractive in the first place. The structure serves as an ideal solution for highly ambitious companies that do not want to be limited by the requirements of traditional debt finance.
The primary difference lies in control and lender dynamics. In a syndicated loan, one lead lender typically holds a dominant role, setting terms and taking a larger share of the loan. In contrast, a club deal features a smaller, more balanced group of lenders who contribute similar amounts of capital, share decision-making authority, and work from collective documentation. Club deals offer more flexibility and a closer lender-borrower relationship than traditional syndication.
While both involve collaboration between multiple parties, club deals occur in the debt financing space, with lenders jointly providing a loan under shared terms. Co-investments, on the other hand, typically refer to equity investments where multiple investors put capital into a company or project, often alongside a lead investor. Club deals focus on structured lending with equal lender involvement, while co-investments are more common in private equity or venture capital contexts.
