A direct lender is one who extends and risks their own capital in exchange for a return.
Direct lending arrangements allow the individual lending institution or investor to make the sole decision on their business loan investments. In some cases, this can provide added avenues for funding for small business owners. Some direct lenders are open to a higher degree of risk if the promised financial rewards are significant enough to justify that risk; as a result, companies can sometimes acquire funding from a direct lender when that funding is not available through other lending sources. This is especially true in the subprime or bad credit financial marketplace. Direct lenders can assess the risks and rewards and provide a funding solution for businesses that provides adequate protection and financial compensation for the lender and the necessary financial resources for the company, creating a win-win situation for both parties.
What distinguishes direct lending companies from banks and other financial institutions is the degree of separation between the initial source of the funds and the ultimate recipient. As the name suggests, direct lenders offer their own financial resources directly to the borrower; angel investors are a good example of this type of arrangement. By contrast, banks, credit unions and other lending institutions use funds obtained from depositors to provide the financial basis for business loans. These lenders must follow specific guidelines set up by the banking institution and must abide by all applicable federal, state and local laws in order to protect the assets of their depositors. This may make traditional banking institutions less amenable to risk than their direct lender counterparts.
CNF Exchange can put businesses in touch with direct lenders who can make quick decisions on the loan application and provide funding for a variety of business needs. Direct lenders can often provide an additional source of business loans for companies even if they have been turned down by traditional lending institutions in the past.