The British Business Bank has made a £50 million cornerstone commitment to Soho Square Partnership Capital Fund II, a lower mid-market vehicle designed to offer structured capital to founder-owned UK businesses. The announcement also confirmed the participation of several US institutional investors in the fund, though their identities and aggregate commitments were not disclosed.
Soho Square Capital, headquartered in London, targets businesses with EBITDA of up to £15 million and turnover of up to £200 million. It combines senior secured debt instruments with minority equity positions, giving portfolio companies access to growth capital without requiring owners to dilute their stakes to the degree typical private equity terms demand. At least 75% of Fund II’s capital will be deployed within the UK, with a stated emphasis on businesses outside London and the South East, across the nations and regions.
Filling the structured capital gap
The fund’s rationale sits squarely in a well-documented financing gap. For established, profitable businesses seeking to fund acquisitions, management buy-outs, succession events or technology investment, the choice has historically been binary: accept the rigid covenants and limited flexibility of mainstream bank lending, or accept the dilutive ownership structures of traditional private equity. Neither route suits every founder, particularly those who intend to remain in the business long-term.
Structured or partnership capital, which layers debt with minority equity upside, has attracted growing institutional interest in the UK as a means of bridging that gap. Fund II will prioritise sectors aligned with the UK government’s Industrial Strategy, with a preference for digital and technology, and professional and business services. The Bank’s cornerstone commitment is explicitly designed to provide confidence to co-investors and to trigger further institutional capital mobilisation into the vehicle.
Adam Kelly, managing director and co-head of funds at the British Business Bank, said the commitment was “directly addressing a gap in the debt market” and would unlock flexible capital for businesses “currently underserved by other lenders.”
Policy alignment and what comes next
The British Business Bank’s involvement reflects its five-year Strategic Plan, which earmarks capital for deployment across eight Industrial Strategy priority sectors. As cornerstone investor, the Bank will also have the right to participate in co-investments alongside the fund, a structural feature that gives it potential upside exposure to portfolio performance without taking a formal general partner role.
Blair McDougall, minister for Small Business and Economic Transformation, framed the commitment within the government’s Modern Industrial Strategy, emphasising access to capital for high-growth SMEs as a lever for job creation and regional economic development.
For the UK’s lower mid-market, the broader competitive context is worth noting. Several private credit managers and specialist structured capital firms have expanded their UK SME activity in recent years, partly as traditional bank balance sheets have become more selective under Basel III capital requirements. Soho Square’s positioning, combining institutional debt structuring with hands-on strategic support, competes with that growing private credit cohort as well as with the mezzanine arms of larger alternative asset managers.
The markers to watch are the fund’s final close size once the US institutional commitments are factored in, the pace of deployment into Industrial Strategy sectors outside London, and whether the Bank exercises its co-investment rights on early transactions.
