What is direct lending?
With direct lending, a specialist fund provides a loan directly to a business, without a bank acting as intermediary and without syndication on the capital market. It is the largest category within private debt.
How does it differ from a bank loan?
- One point of contact: you negotiate with the fund, not a remote credit committee
- Tailored terms: repayment, duration and covenants are aligned with your business plan
- Speed: a turnaround of four to eight weeks is common
- Cost: interest rates are higher than at a bank, often 7% to 11%
Which businesses is it suitable for?
Direct lending targets businesses with proven, predictable cash flow. Typical characteristics:
- EBITDA of around €1 million or more
- A positive operating margin over several years
- A specific purpose: acquisition, expansion or refinancing
Structure of a typical deal
The loan is usually senior secured: your lender ranks first in priority and takes security over shares and assets. The term is five to seven years with a bullet repayment, meaning you only pay interest during the term. This keeps your working capital available.
What does a fund require from you?
- A financial model with a three- to five-year forecast
- Annual accounts for the past three years
- Monthly or quarterly reporting once the loan has been provided
- Compliance with covenants such as the leverage ratio and DSCR
Advantages and disadvantages
✅ Fast decision-making and tailored terms ✅ Higher leverage may be possible than with a bank ✅ No dilution of your shareholding ❌ Higher interest costs ❌ Strict reporting obligations ❌ Often an early repayment penalty
Conclusion
Direct lending is attractive if you have a clear plan, stable cash flow and need to move quickly. Always compare several providers: interest rates, fees and covenants vary considerably between funds.
Sources and scope
Examples and policy choices in this article are illustrative, not a current quotation, fixed standard or financial or legal advice. The editorial revision date relates to the summary, structure and source references; it is not a reference date for the underlying data.
| Primary source | What is it used for? |
|---|---|
| KVK (Dutch Chamber of Commerce) — checking business partners | Company identification and checks on business partners. |
Source links support the topic mentioned, but do not automatically substantiate all percentages, time frames or examples in this article. Check current terms and rules with the responsible authority.
Request credit information with sources and reference dates
