How does direct lending work?

In short, direct lending is a (business) loan without bank intervention. These loans are issued by non-bank lenders. These are the so-called fintech companies. Using algorithms, they assess the application and associated costs. Direct lending has fewer (high) requirements than the bank. This makes it possible for more entrepreneurs to get financing.

Also read the blog: what is direct lending?

Direct lending parties therefore make use of algorithms. This is also to make business loans easier. That sounds a bit technical, but this means that you can easily apply online without stacks of paperwork.

All you need is an overview of business banking transactions. Your application will then be reviewed very quickly. The money will be in your account within a few days.

How does a bank loan work?

You can't actually go to the bank (anymore) for smaller amounts. If you want to borrow a large amount, you can still go there for a bank loan. You pay it back, of course with interest, spread over an agreed period. This is usually a period of 5 years or longer.

In order to apply to the bank, you need many different documents. Of course, they want to know who they're working with and be sure to get their money back. The process is lengthy and complicated, actually out of date. After your request, it may take a few more weeks before you have the money in your account. If you can already do that, because business lending from the bank is becoming increasingly difficult...

What are the differences between direct lending and bank loans?

Now that you know how direct lending and a bank loan work, let's look at the differences. We have listed the five most important differences below.

quickness

At the bank, it can take weeks and sometimes months before you take out the loan. With a direct lender, you will know after one day whether your application has been approved. You will then have the amount in your account within a few business days. Thanks to the fast processing, you can switch easily and therefore invest quickly.

Less administration

Many documents are requested from the bank. Think of the profit and loss statements, the balance sheet for the past 2 years and the income tax return. But they also ask for a forecast for the coming year and the substantiation for your investment. Everything to ensure that you are able to repay the loan properly. In short, the list you have to provide is long.

The list that you provide to a direct lender is shorter. They mainly look at recent history, where cash flow is the most important measure. This is complemented by external sources for a complete picture. So you don't have to deliver the entire paper shop. The amount of documents has to do with the type of request and/or loan amount.

More customization possible

For many reasons, banks have had to sharpen their risk assessment. They are subject to all kinds of protocols and strict requirements. Direct lenders have less stringent requirements. They do have protocols, but they are less stringent. More (customization) is often possible.

Collateral

A bank wants a certain amount of security in the form of goods or rights. As soon as you fail to meet the obligations, they can claim this, a type of insurance. A direct lender also asks for collateral, but to a lesser extent.

Price

We can be brief and honest about that: direct lending is often more expensive than borrowing from the bank. The costs depend on the situation. But the fact that you can go to a direct lender if the bank does not want to cooperate, plus the benefits, make direct lending one good alternative!

Swishfund; borrow directly without a bank!

Swishfund is a direct lender that specializes in corporate financing. We offer financing ranging from €3,000 to €1,000,000 with a duration of 3 to 24 months.

We believe that every entrepreneur should have access to finance as efficiently and flexibly as possible. With this vision in mind, we are working on the latest technologies. To permanently make traditional corporate finance a thing of the past.

Are you interested in taking out a business loan? Start your request today and invest in growth!