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 stage | Established with assets and a trading history | |
| Annual turnover | Any | |
| Sectors | Any | |
| Regions | Any | |
What's your next step?
Other finance options
Expansion Capital
Equity
Expansion Capital firms give established businesses money to grow and reach maturity.
{"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"}}}
Angel Investment
Equity
Angel Investors act as mentors and invest their own money in early-stage businesses for a share in the company.
{"mTitle1":"ANGEL INVESTMENT","mTitle2":"Investors like","mPara2":"Early-stage businesses with a turnover of less than £5m. They invest in any sector but like businesses with a scalable business proposition.","mTitle3":"You're looking for","mPara3":"Between £15,000 and £500,000 within two to six months from a single Angel for working capital, product development, entry into new markets, to build teams or increase sales. Large Syndicates may offer up to £2m.","mCTATxt":"FIND OUT MORE","mCTAUrl":"https://www.british-business-bank.co.uk/finance-hub/angel-investment"}
{"section1Name":"ABOUT ANGEL INVESTMENT","section1CTA":"LEARN MORE","section1URL":"/angel-investment","section1Rows":{"row1":{"Title":"Purpose of finance","Content":"Working capital, product development, entry into new markets, build teams, increase sales"},"row2":{"Title":"Amount of finance","Content":"Usually £15k-£500k, but large Syndicates may offer up to £2m"},"row3":{"Title":"Duration of finance","Content":"Typically 3-8 years"},"row4":{"Title":"Cost of finance","Content":"None"},"row5":{"Title":"Time to finance","Content":"2-6 months"}},"section2Name":"ABOUT YOUR BUSINESS","section2CTA":"LEARN MORE","section2URL":"/angel-investment","section2Rows":{"row1":{"Title":"Business stage","Content":"Generally early stage, pre-revenue or pre-profit"},"row2":{"Title":"Annual turnover","Content":"Less than £5m"},"row3":{"Title":"Sectors","Content":"All sectors, but especially suitable for companies with a scalable business proposition"},"row4":{"Title":"Regions","Content":"All regions"}},"applyItems":{"item1":{"txt":"view the journey to finance","url":"https://www.british-business-bank.co.uk/finance-hub/wp-content/uploads/2018/04/Angel-Investments-teal-gold-purple2.pdf"},"item2":{"txt":"view the application checklist","url":"https://www.british-business-bank.co.uk/finance-hub/angel-checklist"}}}
IPO
Equity
An IPO (or Initial Public Offering) is when a business sells shares via the public markets, such as the Main Market or AIM operated by the London Stock Exchange.
{"mTitle1":"IPO","mTitle2":"Investors like","mPara2":"Established and growing businesses, with predictable revenues and a proven track record. Smaller companies, including those who are pre-revenue, can also be attractive depending on the proposition. ","mTitle3":"You're looking for","mPara3":"Unlimited equity capital. Up to £200m on AIM or even larger sums on the Main Market and exposure to a wider pool of investors.","mCTATxt":"FIND OUT MORE","mCTAUrl":"https://www.british-business-bank.co.uk/finance-hub/ipo"}
{"section1Name":"ABOUT IPO","section1CTA":"LEARN MORE","section1URL":"/ipo","section1Rows":{"row1":{"Title":"Purpose of finance","Content":"Acquisition, product development, new markets"},"row2":{"Title":"Amount of finance","Content":"Up to £50m on AIM; unlimited on the Main Market"},"row3":{"Title":"Duration of finance","Content":"10 years +"},"row4":{"Title":"Cost of finance","Content":"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"},"row5":{"Title":"Time to finance","Content":"IPO processes takes 10-12 weeks; but planning and negotiations can take 12-18 months"}},"section2Name":"ABOUT YOUR BUSINESS","section2CTA":"LEARN MORE","section2URL":"/ipo","section2Rows":{"row1":{"Title":"Business stage","Content":"Established and growing"},"row2":{"Title":"Annual turnover","Content":"Over £5m; this does not apply to healthcare businesses"},"row3":{"Title":"Sectors","Content":"All sectors; healthcare and tech may be able to list earlier in their lifecycle than other sectors"},"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/IPO-Journey-Infographic2-purple-yellow-teal.pdf"},"item2":{"txt":"view the application checklist","url":"https://www.british-business-bank.co.uk/finance-hub/ipo-checklist"}}}