What is Direct Lending?

Breaking down barriers between private capital and SMEs

Direct lending is the provision of credit directly to small and middle market companies (SMEs) for growth or acquisitions.

With mainstream banks reducing their supply of loans, new sources of finance have developed. For the smaller loan sizes, peer-to-peer (P2P) and new asset-backed providers have come to play a useful role. Banks have returned to lending markets but the new regulations they operate under, have reduced their relevance to SMEs. The gap that remains has attracted the attention of private institutional lenders.

Private lenders are well suited to carry the ball that banks have so dramatically dropped. They are often able to be more flexible than the banks and have 'locked-up' investments from pension funds and insurance companies, therefore able to invest for the long term and be patient.

Direct lending by private funds in Europe runs at over 1500 transactions annually, according to industry figures. This is just the tip of the iceberg as tracking deals with smaller companies is hard to do accurately.

Typical Loan Features

The table below summarises the key features of the loans offered by private lenders in the Altimapa Capital network


Loan size: £2 to £200 million
Maturity: Up to 7 year (often non-amortising)
Cash interest: Typically between 5% and 12%, varying with seniority, company and available security
Structure: Varying degrees of customisation available: senior or subordinated, pay-in-kind (rolled-up interest), bridge financing, debt+equity packages, equity features (e.g. warrants) and others
Security: Often secured on the companies' cash flow and/or assets

Learn about the direct lending market by reading our guide

Altimapa Private Debt Market Update (6th ed.)