More lenders are turning toward opportunities in the lower middle market, a function of stricter covenants, increased competition for larger deals and added protections of lending to smaller firms.

Reuters reports that the growing size and sophistication of funds, as well as heightened competition, have weakened terms for loans made to companies with larger earnings.

“There are stricter underwriting standards in the lower middle market – the level of competition is a key factor, and you see less of it in this space,” said Tas Hasan, partner at Deerpath.

Lower middle market deals, for instance, distinguish themselves from the upper segments because they still include a fixed-charge coverage ratio and capital expenditure limit.

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