Direct Lending

Loans made directly by non-bank lenders or funds to companies, typically mid-sized businesses, rather than through public bond markets.

Example

A private credit fund lends 20,000,000 to a mid-sized manufacturer at a floating rate.

Important

The loans are usually illiquid and valued by estimates, so reported stability can hide rising risk.

Related terms

  • Private markets — Markets for ownership stakes that are not listed on a public exchange - startups, private companies, and many funds.
  • Senior Secured Loan — A loan that ranks first for repayment and is backed by a claim on specific assets of the borrower.
  • Floating-Rate Loan — A loan whose interest rate is a reference rate plus a fixed margin, so payments change as the reference rate moves.

Lessons that explain it

  • You are the lender, so you inherit the lender's worst day — Private credit means lending money outside public bond markets - to companies, property projects or individuals - usually directly or through a platform or fund, with no easy way to sell the loan. (9 min)

All 578 terms in the Investing glossary