Direct Lending is a line of credit extended to a business to help it grow or acquire resources. The non-bank lenders themselves can be wealthy individuals or other companies like asset or wealth managers. Lending is made directly to small and medium sized companies (SMEs).
Companies with less than 250 employees and an annual turnover of less than €50 million can be often overlooked by traditional banks when sourcing additional funding for growth or the acquisition of assets. This is where direct lending from non-bank lenders is vital. As there is no intermediary banking institution involved in the lending of funds, credit terms can be flexible and transaction time tends to be quicker. Direct lending is mutually beneficial to both creditor and debtor. The debtor has the opportunity to grow and expand with the injection of capital. Meanwhile, by offering favourable lending-terms, the creditor can receive favourable rates of interest and generate attractive financial returns as a result.
The direct lending market is reported to be worth over $150billion. A typical individual loan can vary from $2 -$200million, with maturity ranging anywhere up to 7 years.
•Direct lending market has grown since the financial crisis of 2007/8 as banks have reduced their lending.
•Creditors can receive favourable interest rates for providing direct capital.
•Debtors can grow and acquire new assets with a flexible investment arrangement.
•Peer-to-peer lending is a subset of direct lending that focuses on smaller transactions. Loans are typically less than $1million and normally have a maturity of less than6 months.