{"id":2866,"date":"2020-03-23T17:58:43","date_gmt":"2020-03-23T17:58:43","guid":{"rendered":"http:\/\/localhost\/2020\/swoopMW20\/?post_type=knowledge-hub&p=2866"},"modified":"2023-11-29T14:55:19","modified_gmt":"2023-11-29T14:55:19","slug":"direct-lending","status":"publish","type":"knowledge-hub","link":"https:\/\/swoopfunding.com\/za\/knowledge-hub\/direct-lending\/","title":{"rendered":"Direct lending"},"content":{"rendered":"\n
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\n \n What is direct lending? <\/a>\n <\/h5>\n <\/div>\n\n
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Direct lending is a type of\u00a0private debt<\/a>\u00a0financing, i.e. it refers to debt investments that come from institutions other than banks. Lenders (usually asset management companies) combine their capital together into a professionally managed fund, which provides debt products to businesses. Unlike publicly listed corporate bonds, private debt products are usually illiquid and not regularly traded on public markets.

How does a direct lending fund work? Asset management companies (AMCs) such as hedge funds, private equity firms and insurance companies raise pools of money from investors who are interested in high-risk, high-yielding debt. These AMCs then lend directly to companies, corporate groups and subsidiaries \u2013 or to special purpose vehicles established to finance specific projects or assets \u2013 in the same way that banks would lend to them. A direct lending fund might act alone or club together with other funds.<\/p>\n <\/div>\n <\/div>\n <\/div>\n

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\n \n Why choose direct lending? <\/a>\n <\/h5>\n <\/div>\n\n
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You could consider\u00a0private debt<\/a>\u00a0if you are looking to raise working capital for business growth (see growth finance), infrastructure, real estate development or a buyout.

The tighter regulatory capital requirements that followed the 2008 global financial crisis forced banks to cut back on lending to businesses. Non-bank lenders stepped in to plug the gap by providing direct lending to fast-growing, medium-sized and large businesses.\u00a0

Direct lending comes under the umbrella of\u00a0private debt<\/a>\u00a0(also known as private credit), which includes\u00a0mezzanine finance<\/a>\u00a0and\u00a0special situations<\/a>.

Defining terms<\/strong>

The term \u2018direct lending\u2019 is sometimes used interchangeably with \u2018private lending\u2019, \u2018private debt\u2019 or \u2018private credit\u2019 but we see direct lending it a subset of \u2018private debt\u2019.<\/p>\n <\/div>\n <\/div>\n <\/div>\n

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\n \n Have you also considered? <\/a>\n <\/h5>\n <\/div>\n\n
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Private debt is an umbrella term that refers to debt products that are financed by non-bank institutions. Unlike publicly listed corporate bonds,\u00a0private debt<\/a>\u00a0products are usually illiquid and not issued or traded on public markets. Private debt (also known as private credit) includes\u00a0direct lending<\/a>,\u00a0mezzanine finance<\/a>\u00a0and\u00a0special situations<\/a>.
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Alternative finance is a catch-all term for any type of business finance that does not come from a mainstream provider such as a high street bank<\/strong>.

Put simply, alternative finance describes any finance provided outside of the traditional banking system. Some people have a narrower definition that includes only the internet-based platforms on which borrowing and lending take place, usually between private individuals and businesses. We however prefer the broader definition.

Banks often have lending criteria that smaller businesses can\u2019t meet, which is why businesses might look at non-bank options such as:<\/p>\n