Direct lending funds
Debt products for businesses, repaid with interest, along with any agreed fees and charges, over a set period.
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.
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.
- 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
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.
Established, with assets and a trading history
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?
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 websiteLink opens in a new window
Other finance options
|Purpose of financessss||Change in shareholder ownership, management buy-outs, acquisition, product development, entry into new markets|
|Amount of finance||£10m-£50m|
|Duration of finance||3-5 years|
|Cost of finance||Monitoring and director fees; loan note interest|
|Time of finance||Minimum of 3 months but can take up to a year|
|Business stage||Mature and growing; profitable|
|Purpose of financessss||Acquisition, product development, new markets|
|Amount of finance||Up to £50m on AIM; unlimited on the Main Market|
|Duration of finance||10 years +|
|Cost of finance||You will need to appoint an accountant, a law firm and usually a PR firm. Assume this will cost 8% of the amount you hope to raise|
|Time of finance||IPO processes takes 10-12 weeks; but planning and negotiations can take 12-18 months|
|Business stage||Established and growing|
|Annual turnover||Over £5m; this does not apply to healthcare businesses|
|Sectors||All sectors; healthcare and tech may be able to list earlier in their lifecycle than other sectors|
|Business stage||Established with assets and a trading history|
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