The term direct loans is not very well known in the Nordic market, but more so in the European and American markets. The meaning is relatively simple; Direct loans are just like a regular bank loan, but without a bank. The lender is instead a private player, for example a fund, and thus direct loans are usually referred to as an asset class called "private debt". Direct loans as financing have grown as an asset class ever since the financial crisis. As tougher regulations have been introduced, banks have become increasingly restrictive in their lending to companies, which has paved the way for alternative financing, including direct loans. In particular, banks have become more restrictive in lending to small and medium-sized companies, where direct loans such as financing fill a gap in the market.
Direct loans create lots of opportunities
As companies in need of financing, direct loans may be the only means of financing. Banks are governed by tougher regulations that are not affected by private players in the loan market, and therefore enable financing of small and medium-sized companies, a segment of companies that without direct loans would not have access to debt capital at all. In other cases, companies have the option of bank financing, but choose direct loans to be able to borrow at a higher loan-to-value ratio. Players in the direct mortgage market can take on more risk than banks can, simply. Another situation where direct loans constitute a solution is for family-owned companies in need of capital that does not have access to bank financing. In family-owned companies, they do not want to be diluted in their ownership and therefore do not want to raise more equity. The direct loan market can then offer debt capital. In other words, direct loans as financing can be crucial to a company's ability to expand or implement changes.
Through more than 5,500 private investors, the fund has built up capital that is invested in direct loans to Nordic companies or companies with links to the Nordic countries. Direct loans are short term and the structure of the loans can be varied and flexible depending on the borrower, another advantage with direct loans. While the Fund contributes to the development and growth of companies through financing, the Fund offers investors an investment product that is not normally available to private investors.