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

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.
{"mTitle1":"PRIVATE EQUITY","mTitle2":"Investors like","mPara2":"Mature, growing and profitable business with an annual turnover typically between £10m and £100m.","mTitle3":"You're looking for","mPara3":"Finance in the region of £10m to £50m to shake up your business through management buy-outs, acquisition, product development or entry into new markets.","mCTATxt":"FIND OUT MORE","mCTAUrl":"https://www.british-business-bank.co.uk/finance-hub/private-equity"}
{"section1Name":"ABOUT PRIVATE EQUITY","section1CTA":"LEARN MORE","section1URL":"/private-equity","section1Rows":{"row1":{"Title":"Purpose of finance","Content":"Change in shareholder ownership, management buy-outs, acquisition, product development, entry into new markets"},"row2":{"Title":"Amount of finance","Content":"£10m-£50m"},"row3":{"Title":"Duration of finance","Content":"3-5 years"},"row4":{"Title":"Cost of finance","Content":"Monitoring and director fees; loan note interest"},"row5":{"Title":"Time to finance","Content":"Minimum of 3 months but can take up to a year"}},"section2Name":"ABOUT YOUR BUSINESS","section2CTA":"LEARN MORE","section2URL":"/private-equity","section2Rows":{"row1":{"Title":"Business stage","Content":"Mature and growing; profitable"},"row2":{"Title":"Annual turnover","Content":"£10m-£100m"},"row3":{"Title":"Sectors","Content":"All 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/private_equity_purple_teal_yellow_white_disclaimer.pdf"},"item2":{"txt":"view the application checklist","url":"https://www.british-business-bank.co.uk/finance-hub/private-equity-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.
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