What unitranche and direct lending are
Direct lending means loans made straight to mid-market companies by non-bank private credit funds and some specialist banks, often to fund private equity deals. Unitranche is the most common direct lending structure: a single term loan that replaces separate senior and junior (mezzanine) debt, with one set of documents, one margin and usually one repayment at the end.
One UK provider describes a Single secured unitranche term loan, with a Revolving Credit Facility (RCF), acquisition and capex facilities on request. Deloitte’s deal tracker (Deloitte, Autumn 2025) classifies Senior only deals with pricing S + 650 bps or above as Unitranche.
Unitranche cost and headroom calculator
Illustrative example figures. The default values are examples or dated published figures, not quotes or market rates. Inputs marked Example are our own illustrations, even where one provider’s published figure is shown beside them. Replace them with the figures in your own offer.
Important information. RaiseDebt publishes general information about UK business finance. It is not financial advice or a recommendation, and it is not an offer or invitation to borrow. RaiseDebt is not a lender and is not authorised by the Financial Conduct Authority (FCA). Calculator results are illustrative estimates based on the figures you enter, not quotes. Lenders decide eligibility, rates and terms, and may run credit checks. Borrowing by sole traders, partnerships and other individuals can be regulated by the FCA; you can check any firm on the FCA Register.
Schedule
Assumptions and definitions
- Loan = EBITDA × leverage, drawn in full at the start. Interest = (SONIA + margin) ÷ 12 on the loan each month, with SONIA held flat.
- No capital is repaid until the end of the tenor (a bullet repayment).
- The arrangement fee is deducted from the money you receive. The non-utilisation fee = undrawn revolving facility × the fee percentage × the margin, paid each year.
- Interest cover uses a year’s interest on the unitranche only. No agency, legal or prepayment fees are included, and EBITDA does not change.
- Effective annual cost (estimate) is the internal rate of return (IRR) of the cash flows, meaning the money you receive after upfront fees and then every payment and fee, each at the date it falls. It is the annual rate r at which the present value of all of them is zero, Σ amount ÷ (1 + r)t = 0 with t in years. With monthly flows this is the same as (1 + monthly IRR)12 − 1. It is not a lender’s quoted APR and leaves out any cost not entered here.
- Results are rounded estimates for illustration and are not an offer of credit.
How to check what a unitranche costs and how much headroom it leaves
- Enter EBITDA and the leverage. The lender sizes the loan as a multiple of EBITDA.
- Enter SONIA, the margin and the fees. Use the margin and arrangement fee from the term sheet.
- Add any undrawn revolving facility. Enter the undrawn amount and the non-utilisation fee as a share of the margin.
- Check the interest cover. A low cover leaves little room if EBITDA falls. Compare it with the covenant in the term sheet.
When companies use it
Unitranche is mostly used for buyouts, acquisitions, refinancing and growth investment, where the company needs more debt than a bank will lend. Deloitte’s comparison (Deloitte, Autumn 2025) lists Speed of execution and a One-stop shop solution among its advantages.
It is dominant in sponsor-backed lending. Deloitte (Deloitte, Autumn 2025) found that Unitranche is the dominant structure, representing 59% of UK transactions and 54% of European transactions, with mezzanine increasingly sidelined.
It costs more than a bank loan. Where the debt needed is low, bank senior debt is cheaper: Deloitte’s chart (Deloitte, Autumn 2025) shows Up-to 2x Senior Debt S+[50-350]bps. It is not for loss-making companies without EBITDA.
How much you can borrow
Lenders size unitranche on EBITDA. One UK provider offers Funding range of £5m - £50m with Leverage maximum 5x EBITDA, and wants a Minimum … (EBITDA): £1m. Deloitte (Deloitte, Autumn 2025) reported that nearly half of new deals are levered above 4.0x, with a sharp rise in >5.0x transactions.
Deal volumes have fallen in the UK, where Deloitte (Deloitte, Autumn 2025) recorded activity falling from 253 deals in mid-2023 to 164 in mid-2025.
Terms and repayment
Unitranche runs longer than bank debt and is usually repaid in one go at the end. One provider quotes a Typical tenor: 6 years with Bullet repayment. Bank senior debt, by comparison, has a Shorter tenor (3-5 years), is Partly amortising and comes with More restrictive terms (Deloitte, Autumn 2025).
A bullet repayment frees cash flow during the term but leaves a large refinancing at maturity. Many deals pair the unitranche with a revolving credit facility from a bank, which often ranks ahead of the unitranche if things go wrong. The ranking is set out in an agreement between the lenders, so read it closely.
What it costs
Pricing is SONIA (3.7335% as at (Bank of England database (IUDSOIA))) plus a margin. Deloitte’s Autumn 2025 tracker showed 5x Unitranche S+[650-750]bps, or SONIA plus 6.5% to 7.5%. Margins have since tightened, so treat this as a dated indication, not current pricing. The same report already noted that competition is driving margins down: sub-5% pricing is now the dominant band, and spreads above 6% have fallen away.
On top of the margin come an arrangement fee (often taken as a discount to the amount lent), agency and legal costs, and early repayment protection for the lender. Lenders do not publish these. If you have an undrawn revolving facility, you pay a non-utilisation fee on the undrawn amount, usually set as a share of the margin (Solon, corporate finance adviser).
Example With the calculator defaults (EBITDA £4m at 5x, so a £20m loan, at SONIA plus 6.5%), interest is about £2,046,700 a year and EBITDA covers it about 1.95 times. A 2% arrangement fee and a non-utilisation fee of 35% of the margin on a £3m undrawn facility bring the simple all-in cost to about 10.9% a year. Because interest is paid monthly, the effective annual cost is higher, at about 11.6%.
Security and covenants
Unitranche is secured. One provider describes a Single secured unitranche term loan; in practice the lender usually takes security over the group’s assets and shares. Deloitte (Deloitte, Autumn 2025) found that most UK deals are structured as first lien.
Deloitte (Deloitte, Autumn 2025) lists Flexible covenants as an advantage over bank debt. You will still face financial tests. HMRC notes that Loan covenants commonly include a maximum ratio of debt to earnings and a minimum ratio of earnings to interest costs. Covenant levels are negotiated deal by deal.
Who qualifies
Lenders look for profitable, cash-generative companies with EBITDA high enough to support four to five times leverage. One provider targets Private Equity houses investing in UK SMEs, with a Minimum … (EBITDA): £1m. Some funds also lend to founder-owned companies without a private equity sponsor.
Lending to companies is generally outside FCA regulation. One provider states its products are not regulated by the Financial Conduct Authority or the Prudential Regulation Authority.
Who provides it
- Private credit and direct lending funds, the main providers.
- Specialist and challenger banks with sponsor finance teams (example).
- Clubs of funds and banks, where a bank often provides the revolving facility and a fund provides the unitranche.
Deloitte’s fund strategy table (Deloitte, Autumn 2025) shows target gross returns of 5–10% for direct senior lending and 12–18% for mezzanine.
Pros and cons
Pros
- Covenants are usually more flexible than bank debt (Deloitte, Autumn 2025).
- One lender and one set of documents, so deals can close faster.
- More leverage than banks offer, up to about 5x EBITDA at some providers.
- A bullet repayment leaves more cash in the business during the term.
- A longer tenor than bank senior debt.
Cons
- Higher pricing than bank debt (Deloitte, Autumn 2025).
- A large bullet repayment to refinance at maturity.
- Arrangement, early repayment and non-utilisation fees.
- Higher leverage leaves less room if earnings fall.
- Mostly aimed at private equity-backed companies.
Frequently asked questions
What is unitranche?
A single loan that combines senior and junior debt at one blended margin. Deloitte (Deloitte, Autumn 2025) counts senior-only deals priced at S + 650 bps or above as unitranche. Source: Deloitte
How common is it?
Deloitte’s Autumn 2025 tracker found it in 59% of UK transactions. Source: Deloitte
How much can I borrow?
Typically up to about five times EBITDA. One UK provider lends £5m - £50m to companies with at least £1m of EBITDA. Source: UK specialist bank unitranche page (Shawbrook)
What does it cost?
SONIA plus a margin, plus fees. Deloitte, Autumn 2025: S+[650-750]bps for 5x unitranche. Margins have since tightened, so treat this as a dated indication, not current pricing. Source: Deloitte
How is it repaid?
Usually in one payment at maturity. One provider quotes a Typical tenor: 6 years. Source: UK specialist bank unitranche page (Shawbrook)
What covenants will I face?
Usually fewer and looser than bank debt. Typical tests are a maximum ratio of debt to earnings and a minimum ratio of earnings to interest (HMRC). Source: HMRC International Manual INTM516010
Is it only for private equity-backed companies?
Mostly, but some lenders also lend to founder-owned companies without a sponsor.
How is direct lending different from a bank loan?
Direct lenders offer more leverage, longer terms and a single repayment at the end, at a higher cost. Bank loans are cheaper but shorter, partly amortising and more restrictive (Deloitte, Autumn 2025).
Sources
Checked on 19 October 2026. Lender and provider pages are cited as evidence of what one firm publishes, not as recommendations.