Banks more cautious
Providing loans to businesses, whether large or small, was for many decades - if not hundreds - of years the exclusive domain of banks. For a long time, anyone who needed money as an entrepreneur to grow further, invest in machinery or take over a competitor had only one option: to turn to one of the general banks. This situation has changed rapidly in recent years. Traditional banks have become increasingly cautious with lending to businesses. This is due not only to regulations and uncertain economic conditions, but also to an unfavourable earnings model for banks. In addition, procedures have become much more bureaucratic, often making a financing application take many months. For many an entrepreneur, the chance then already lost.
No bank needed any more
This created a clear gap between supply and demand. And, as it always goes then in the economy, plenty of parties dared to jump into that gap. The first to do so were large parties who, in acquisitions worth many hundreds of millions of provided loans of tens of millions. They did this without the intervention of any bank. This gave birth to the phenomenon of 'Direct Lending'; a form of non-bank financing where the money often comes from institutional investors, such as pension funds.
Examples Direct Lending
A well-known and fairly recent example of a Direct Lending transaction is the acquisition of Sunweb by an investment company, in early 2019. In doing so, Pemberton Asset Management Group provided funding of some 100 million euros. Meanwhile, there are dozens of new Direct Lenders on the market. Some focus on medium-sized and large companies and provide loans from €1 million to as much as €10 million. Other parties, on the other hand, focus on smaller companies and provide loans of up to €250,000, for example.
Terms and conditions Direct Lending
The exact terms are different with all parties. Broadly speaking, these are the most common conditions:
- The company must at least 2 years of existence; for some forms such as overdrafts, this is often 3 years.
- Operating profit in the last and current year must be positive are.
- Operating turnover from € 500.000.
- Interest rates from 6%, rising to 9%.
- Suitable for investment, growth, real estate and sometimes acquisitions.
Advantages Direct Lending
The question is why entrepreneurs prefer Direct Lending to other (non-banking) forms of financing. In our view, these are the main advantages of Direct Lending:
- Procedures are many faster. Sometimes the money is available to you within just one or a few weeks.
- Direct Lenders require no or little collateral. As a result, this form of financing can also be used in addition to existing bank financing.
- Often with Direct Lending, there is the option to pay after a short period of time redeemable without penalty or, for example, to withdraw the redeemed part again.
- You have little to no administrative hassle.
The partners of Xolv Finance are in daily contact with existing and new financial parties on the Dutch market. That is why we are the pre-eminent party when it comes to finding the best financing for your business. We will be happy to advise you!
