Understanding Direct Lenders: FAQs and Insights
Learn about direct lenders, how to identify them, and why they are a popular alternative for small and medium-sized businesses seeking financing. This comprehensive guide covers key aspects such as borrower profiles, spotting legit direct lenders, and industry growth trends.
A direct lender is a financial institution or individual that provides loans without involving intermediaries like brokers or investment firms. They handle every step of the lending process, including application processing, fund disbursement, and repayment management. In contrast, an indirect lender forwards your application or funds to third-party lenders, acting more as a middleman. Recognizing whether a lender is direct is essential to understand your borrowing options and costs.
Who Typically Borrows from Them?
Small and medium-sized businesses often seek loans from direct lenders due to limited access to traditional bank financing. This demand allows direct lenders to charge higher interest rates, usually around 2% more than bank loans.
How to Identify a Direct Lender?
Inspect the lender’s website carefully. If it states that a third party will fund your loan or that your application may be matched with another lender, it’s likely an indirect lender. Genuine direct lenders usually do not mention third-party involvement.
Benefits of Direct Lending
With banks reducing their lending after the 2007-2008 financial crisis, direct lenders have gained prominence by raising significant capital and providing more flexible borrowing options. According to Deloitte, in early 2017, global direct lending reached approximately $13.3 billion in just one quarter, overshadowing total 2016 figures. The sector is dominated by countries holding 61% of the market share, making direct lending a valuable alternative for growing medium-sized firms, with some lenders aiming for larger, high-profile deals.
