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

Charges

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
SectorsAny
RegionsAny

What's your next step?

Other finance options

Corporate Venture Capital
Equity
Corporate Venture Capital is an investment made by a large company into a smaller business, in return for a share of that business.
Is this suitable for your business?
{"mTitle1":"CORPORATE VENTURE CAPITAL","mTitle2":"Investors like","mPara2":"An early stage business - no revenue or profit is needed - willing to give up a share of control.","mTitle3":"You're looking for","mPara3":"£1m+ of finance within 6-12 months of your application for things like acquisition or research and development. ","mCTATxt":"FIND OUT MORE","mCTAUrl":"https://www.british-business-bank.co.uk/finance-hub/corporate-venture-capital"}
{"section1Name":"ABOUT CORPORATE VENTURE CAPITAL","section1CTA":"LEARN MORE","section1URL":"/corporate-venture-capital","section1Rows":{"row1":{"Title":"Purpose of finance","Content":"Acquisition, research and development"},"row2":{"Title":"Amount of finance","Content":"£1m+, depending on business"},"row3":{"Title":"Duration of finance","Content":"3-5 years"},"row4":{"Title":"Cost of finance","Content":"None"},"row5":{"Title":"Time to finance","Content":"6-12 months"}},"section2Name":"ABOUT YOUR BUSINESS","section2CTA":"LEARN MORE","section2URL":"/corporate-venture-capital","section2Rows":{"row1":{"Title":"Business stage","Content":"Any"},"row2":{"Title":"Annual turnover","Content":"Depends on the business"},"row3":{"Title":"Sectors","Content":"All"},"row4":{"Title":"Regions","Content":"All"}},"applyItems":{"item1":{"txt":"view the journey to finance","url":""},"item2":{"txt":"view the application checklist","url":""}}}
Expansion Capital
Equity
Expansion Capital firms give established businesses money to grow and reach maturity.
Is this suitable for your business?
{"mTitle1":"EXPANSION CAPITAL","mTitle2":"Investors like","mPara2":"Post revenue, profitable and growing businesses with a turnover typically between £5m and £50m. Businesses need to be willing to give up a stake in the business in exchange for finance.","mTitle3":"You're looking for","mPara3":"Between £2m to £20m, depending on the shareholding you’re offering, to create new products, enter new markets, acquire other businesses or invest in new systems or equipment to drive growth.","mCTATxt":"FIND OUT MORE","mCTAUrl":"https://www.british-business-bank.co.uk/finance-hub/expansion-capital"}
{"section1Name":"ABOUT EXPANSION CAPITAL","section1CTA":"LEARN MORE","section1URL":"/expansion-capital","section1Rows":{"row1":{"Title":"Purpose of finance","Content":"Create new products, enter new markets, acquire other businesses or invest in new systems and equipment to drive growth"},"row2":{"Title":"Amount of finance","Content":"£2m-£20m (depending on % shareholding acquired and value of company)"},"row3":{"Title":"Duration of finance","Content":"3-5 years"},"row4":{"Title":"Cost of finance","Content":"Due diligence and legal fees will apply. If you appoint an advisor, they will expect a retainer fee"},"row5":{"Title":"Time to finance","Content":"Minimum of 3 months but can be up to a year"}},"section2Name":"ABOUT YOUR BUSINESS","section2CTA":"LEARN MORE","section2URL":"/expansion-capital","section2Rows":{"row1":{"Title":"Business stage","Content":"Post-revenue, profitable and growing"},"row2":{"Title":"Annual turnover","Content":"£5m-£100m"},"row3":{"Title":"Sectors","Content":"All"},"row4":{"Title":"Regions","Content":"All"}},"applyItems":{"item1":{"txt":"view the journey to finance","url":"https://www.british-business-bank.co.uk/finance-hub/wp-content/uploads/2018/04/Growth-Capital-Infographic_3_tail_purple_yellow.pdf"},"item2":{"txt":"view the application checklist","url":"https://www.british-business-bank.co.uk/finance-hub/expansion-capital-checklist"}}}
Venture Capital
Equity
Venture Capital invests in businesses with high growth potential, often after Angel investors have got the business started.
Is this suitable for your business?
{"mTitle1":"VENTURE CAPITAL","mTitle2":"Investors like","mPara2":"Early stage businesses, regardless of whether they have made a profit or revenue, with an annual turnover of less than £3m.","mTitle3":"You're looking for","mPara3":"Significant growth and £1m+ of finance within six to 12 months with the option for multiple funding rounds.","mCTATxt":"FIND OUT MORE","mCTAUrl":"https://www.british-business-bank.co.uk/finance-hub/venture-capital"}
{"section1Name":"ABOUT VENTURE CAPITAL","section1CTA":"LEARN MORE","section1URL":"/venture-capital","section1Rows":{"row1":{"Title":"Purpose of finance","Content":"Acquisition; research and development"},"row2":{"Title":"Amount of finance","Content":"£1m+, depending on funding round"},"row3":{"Title":"Duration of finance","Content":"5-10 years"},"row4":{"Title":"Cost of finance","Content":"None"},"row5":{"Title":"Time to finance","Content":"6-12 months"}},"section2Name":"ABOUT YOUR BUSINESS","section2CTA":"LEARN MORE","section2URL":"/venture-capital","section2Rows":{"row1":{"Title":"Business stage","Content":"Early stage; no revenue or profit needed"},"row2":{"Title":"Annual turnover","Content":"Depends on the business, but is often below £3m"},"row3":{"Title":"Sectors","Content":"All"},"row4":{"Title":"Regions","Content":"All"}},"applyItems":{"item1":{"txt":"view the journey to finance","url":""},"item2":{"txt":"view the application checklist","url":"https://www.british-business-bank.co.uk/finance-hub/venture-capital-checklist"}}}