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
Equity Crowdfunding
Equity
Using an online platform, investors buy shares in a company to help it grow.
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Private Equity
Equity
Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level.
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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.
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