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Monday

July 2024

What is direct lending?

Geschreven door Bart van der Wielen

Direct lending is a form of financing without the intervention of a bank. It is an alternative form of financing for borrowers and an alternative form of investing for investors. An investor can put money in a savings account at a bank for which he receives interest. With that money in that savings account, the bank provides financing to SMEs. Direct Lending skips the bank: you don't lend your assets to the bank, but directly to an entrepreneur.

Providing financing outside the bank is not new. Between family, friends and business associates, financing has long been mutual. Direct lending is increasing sharply in recent years, due to limited savings interest rates being paid by banking parties as well as, due to SMEs and real estate investors finding it increasingly difficult to obtain financing. Bank policy toward lending has changed and many strong financing propositions can no longer be financed. This leaves room for alternative financing options. Including direct lending: financing without the intervention of the bank: directly from investor to entrepreneur.

Differences of direct lending vs. banking solutions.

  • Speed: Entrepreneurs want to follow through. Typically, asset purchase agreements or business acquisitions have agreed on a 6- to 8-week financing reserve. Banking processes are often slow and in doing so, these periods are often not feasible. Investors are often also entrepreneurs or former entrepreneurs, and decision-making is less process-driven than in a bank and runs over fewer decision slices. This creates speed in decision making. At WDL Direct Lending, the average turnaround time is 2 weeks.
  • Interest Level: Investors get higher returns with direct lending than with savings accounts. In addition, they are compensated for the fact that their assets are not on demand and for the risk component. Now, the risk of a loan to a bank (a savings account) is lower than that of a loan to an SME. Thus, the costs for the borrower are higher than at a bank and an investor receives an additional fee compared to a savings account at a bank. Indicatively, the following can be said about this: an investor gets 3-4% per year more interest than on a savings account and a borrower pays 2-3% per year more than on a loan through the bank.
  • Risk: From an investor’s perspective, there is obviously higher risk. There is a chance that you won’t get your loaned money back. Reducing that risk as much as possible requires a mix of factors that we are happy to explain in other blogs or in a personal conversation. Some of the terms that are important here are: a wide choice of financing propositions that fit the investor’s risk-return expectations, thorough analysis at both the business analytical, financial and legal levels, personal contact with the borrower and good management of the loan during its term.

 

Case studies at WDL

Direct lending is an option for a variety of financing needs. Consider: project development, the purchase of a commercial property or the purchase of an investment property. These are plans that further develop the economy of the Netherlands. Entrepreneurship and adding value are key terms.

Data consulting firm

For a company operating in the growing data consulting market, we received a financing request for a beautiful office unit in a prime location. The company could not obtain bank financing because its business structure did not fit within the bank’s automated policy. The company’s cash flow showed that the financing burden is not a problem at all. Together with an investor, we made sure that this data-consulting company could grow.

Acquisition industry peer

For an acquisition of a wholesaler of coffee machines and coffee, we realized the financing within a short period of time. The entrepreneur had a strong track record, well-spread and contractually guaranteed sales and strong cash flow. From previous experiences with bank financing applications, he knew that the bank could not provide the speed of financing that was desired. Thanks to WDL Direct Lending, financing was arranged quickly and on time!

See more completed financings?

How do you apply for WDL Direct Lending financing?

The application process at WDL is simple. Complete the financing check through our website. After this, our specialists will contact you within one business day to discuss and review the application. If your application is approved, we will look for a suitable investor.

How can you invest in WDL Direct Lending?

Investing in direct lending is customized, we at WDL understand that better than anyone. That starts with personal contact. That’s why we like to be aware of your preferences:

  • Industry you would like to invest in
  • The risk you are willing to take
  • The return you want to receive
  • The amount you wish to invest

For available propositions, we will approach you personally, by phone or by mail. All the propositions we offer are thoroughly analyzed by our specialists. For all the collateral, check out our page on WDL Direct Lending.

 

 

Learn more about investing in direct lending?

Contact Ad Huisman at 06 12 94 86 76.

Or mail Ad
Ad Huisman

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