Direct Lenders Funding

The success of direct lenders can be attributed to several factors. These include: (1) high yields, which are consistent and predictable; and (2) high risk. Direct lending involves a high degree of underwriting, with lenders subject to significant restrictions to ensure that they are lending only to borrowers with high credit risk. By comparison, the highest yield corporate bonds trail a mere 7 percent while the US 10-year Treasury is yielding just 1.71 percent.10 Steps to Starting a Business While Keeping Your Full-Time Job | Inc.com

During an economic downturn, the Direct lenders funding standard stock portfolio can lose up to 33 percent of its value. By cutting out the middlemen, direct lending can produce better and more consistent returns. According to the National Association of Securities Dealers (NASD), almost half of investors believe direct lending offers the best investment opportunities in the private credit market. Today, direct lending represents approximately one-fourth of the private credit market. It is a growing trend, generating benefits for both lenders and businesses.

Because of the high interest rates, direct lending is increasingly popular and should continue to remain so. As long as there are new sources of capital available, direct lending will continue to be a valuable asset allocation option. In fact, direct lenders are often wealthy individuals and asset management firms, which are eager to lend their money. This type of lending is also called peer-to-peer crowdfunding and is a good option for small businesses in need of funding.

While traditional banks have historically been reluctant to lend to small businesses, direct lenders have made it easier for these companies to obtain the working capital they need to grow. Small and mid-sized companies are important drivers of the U.S. economy. With the lack of funding from traditional banks, these companies have had to look elsewhere. Direct lending is fast becoming the new norm for small and mid-sized companies. For example, many people refer to direct lenders funding as “bank lending without the bank” since it does not require a traditional credit history.

Pioneer Realty Capital is a preferred nationwide direct lender with over 1,000 capital partners. They participate in deals as equity or mezzanine/senior debt. They also have a crowd-funding platform that attracts investors and services 40 states. Their program options range from 100% financing for a 1-4 unit property for experienced investors to low-interest loans for investors. For more complex financing needs, they offer a number of competitive options, including 0% monthly payments on rehab loans, and 3 months of rental seasoning.

Since direct lenders fund their loans directly, their unitranche deal size has grown steadily. In fact, in 2017, they surpassed the $1.45 billion mark in terms of size. In addition, because they are non-banks, they are not subject to regulatory rules such as the Leveraged Lending Guidelines. That means that direct lenders have the flexibility to finance the difficult parts of the capital structure. They have also been the preferred financing source for smaller companies and family offices.

In addition to a growing demand, direct lenders have consistently accumulated large amounts of money. The Alternative Credit Council predicts that worldwide direct lending will reach $1 trillion this year. As of this writing, direct lenders account for more than half of all private debt fundraising. Their average fund size has increased enormously in the last two years. Further, direct lenders are increasingly seen as a core part of well-diversified investment portfolios. The average fund size has doubled since 2009.

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