Direct lending funds

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

Charges

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.

Business stage

Established, with assets and a trading history

Annual turnover

Any

Sectors

All

Regions

All

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