Direct Lending Fund

Direct Lending Funds provide a range of debt products to SMEs, predominantly loans, which are repaid with interest, along with any agreed fees and charges, over a set period. They are comparable in functionality to a type of Bank Loan.

British Business Investments has committed £375m to 11 funds for SMEs since 2014

Key benefit

More flexible debt products than traditional lenders and can be tailored to match the business needs

Key consideration

Each Direct Lending Fund will have its own requirements you must fulfil

Key requirement

You will need assets to use as security

What is a Direct Lending Fund?

Direct Lending Funds have become increasingly popular suppliers of finance to small and medium businesses in the UK as alternative financing options have continued to grow since the financial crisis.

A Direct Lending Fund is essentially a fund where investors combine their capital together into a professionally managed fund which is then used to provide debt instruments to businesses.

Investors in a Direct Lending Fund earn a return through a combination of fees, interest and other charges applied to the amount of capital the Direct Lending 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, national and international organisations.

Direct Lending Funds (a “Fund Manager”) are the first point of contact. Following an initial contact, the Fund Manager will consider your business and its financial history and forecasts. If they consider your business is potentially suited to funding, they will conduct more detailed operational and financial due diligence before deciding on whether to provide funding and what product is best suited to your business.

Direct Lending Funds’ lending criteria are set by each Fund Manager. Therefore, it varies by fund and the nature of your business.

Benefits of Direct Lending Funds

Retain control of your business

Flexible repayment schedules and deal structure

Risks of Direct Lending Funds


Late or missed repayments can result in charges.

Your credit rating

Credit analysis and due diligence will be carried out when you apply for a loan from a Direct Lending Fund. If you default on repayments it may affect your Business credit report and could also impact your personal credit report.

Assets as security

Any assets used as security may be at risk if you default on your loan repayments.

Need to know / Checklist

  • What is the interest attached to the finance?
  • Is the rate of interest fixed?
  • When will you be expected to repay the finance?
  • Are there charges for early repayment?

Key considerations / eligibilty

  • Do you have assets to secure the loan against?
  • Can you afford the repayments?
  • Will you repay the debt instrument early if you’re able to?

Are Direct Lending Funds right for you?

About your business

Business stageEstablished with assets and a trading history
Annual turnoverAny

What's your next step?

Other finance options

Angel Investment
Angel Investors act as mentors and invest their own money in early-stage businesses for a share in the company.
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Venture Capital
Venture Capital invests in businesses with high growth potential, often after Angel investors have got the business started.
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Businesses can borrow money on demand up to the limit of their overdraft. Overdrafts can be expensive, but a business will only pay interest on the amount they actually borrow.
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