Direct lending funds

Debt products for businesses, repaid with interest, along with any agreed fees and charges, over a set period.

What is a direct lending fund?

A direct lending fund is essentially a professionally managed fund in which a number of investors combine their capital.

The fund is then used to provide debt finance to businesses.

Investors earn a return through a combination of fees, interest, and other charges applied to the amount of capital the fund lends to its borrowers.

Direct lending funds have various strategies suited to different investors.

Typically, they attract institutional investors such as banks, local authority pension funds, and other national and international organisations.

How do they work?

When you approach a direct lending fund, the fund manager will be your first point of contact.

They will consider your business and its financial history and forecasts.

If they think your business is potentially suited to funding, they will conduct more detailed operational and financial due diligence.

With that information, they will decide whether to lend you money, and, if so, which of their products best suits your business.

The fund manager sets their fund's lending criteria.

This means that the conditions for lending will vary between funds, while the nature of your business will also have a bearing on whether you are able to borrow.

What are the benefits?

  • More flexible debt products than traditional lenders and can be tailored to match your business' needs
  • A viable funding alternative for businesses who struggle to get finance from traditional lenders such as banks
  • You retain control of your business
  • Your business can benefit from the knowledge and expertise of the fund's manager and teams

What are the risks?


If you're late with repayments, or miss any, you might be penalised with a fee.

Your credit rating

Direct lending funds do their due diligence and analyse your credit history whenever you apply for a loan from them.

If you default on your repayments (fail to make them), it may affect your business credit report and could also have an impact on your personal credit report.

Assets as security

Any assets you've put forward as security (property, for example) may be at risk if you default on your loan repayments.

Is it right for me?

Business stage

Established, with assets and a trading history

Annual turnover






What do I need to consider?

Here are some important questions you'll need to consider before proceeding with borrowing from a direct lending fund:

  • What interest rate will I be charged for taking the finance? Is it fixed?
  • When will I be expected to repay the finance?
  • Are there charges for paying back the money early?
  • Do I have assets against which I can secure the loan?
  • Can I afford the repayments?

How do I get it?

You can search for direct lending funds online. Once you've found one you think is suitable for your business, you can contact them directly and speak to a fund manager.

To learn more about direct lending funds, visit the British Business Investments website

Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

Making business finance work for you

Our Making business finance work for you guide is designed to help you make an informed choice about accessing the right type of finance for you and your business.

Read the guide to making business finance work for you

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