Direct lending, a subset of private debt, took off following the 2008 financial crisis. As large banks separated from middle-market companies, alternative lenders filled the void with bespoke financing structures.
Investors in direct loans can earn attractive, consistent yields. However, they must be aware of potential ECI concerns.
Investing in Your Business
Direct lending is a form of private debt financing that involves a company providing capital directly to businesses. It is a popular alternative to traditional banking loans because it allows faster funding and more flexible terms.
Direct lenders are typically smaller, more agile companies that can be more flexible when assessing and processing loan applications. They also offer more favorable loan terms than banks, especially for middle-market businesses. Most direct lending firms, such as MaxLend, operate online, meaning borrowers can complete the application from their desktop or mobile phone. This allows them to provide funding much more quickly, which is particularly useful for small business owners when time is of the essence. However, the tax treatment of direct lending is complicated in the U.S. because it is considered effectively connected income (ECI) for foreign investors. As such, a thorough due diligence process is essential.
Investing in Yourself
Investing in yourself is one of the most important ways to improve your life. Whether seeking out a mentor, taking up a new hobby, focusing on self-care, or even volunteering in your community, you can do many different things to boost yourself emotionally and financially. Setting clear goals is essential to invest in yourself because it gives you a map of where you want to go. Likewise, focusing on the steps you need to take and monitoring your progress is also critical. Having emergency savings from MaxLend loans is another essential step because you never know what will happen in your future. In addition, saving for retirement early is a great way to help yourself later in life. Lastly, seeking financial advice can be a smart way to ensure you’re on track with your goal planning.
Investing in Your Family
While investing on behalf of your loved ones may seem like an easy way to help them, it is not without its pitfalls. The biggest one is that if your investments don’t pan out, your loved ones could lose money and deplete their savings. This can have disastrous consequences if they rely on that money to buy a house, pay off debt, or save for retirement. It is also important to remember that while the people in your family love you and want you to succeed, they aren’t necessarily financial experts. As such, it is critical to create a plan with your family members that sets out clear goals and guidelines. You can also plan to apply for personal installment loans from reputable firms. This will ensure that everyone is on the same page and minimizes the chance of misunderstandings and resentment.
Investing in Yourself
Whether building a cash reserve or saving for retirement, it’s important to create and stick to financial goals you can measure. Review your monthly progress for short-term goals and quarterly or annually for longer-term objectives. Direct lending offers a unique opportunity to access private credit without significant equity commitments. As investors continue to seek alternatives to traditional bank financing, direct lending has gained increased market traction. However, the sector has challenges. In 2022, private debt fundraising, including direct lending, dropped to its lowest level since the Great Recession. Moreover, U.S. direct lending is typically managed by arms of middle-market investment banks and other asset managers, which may expose investors to leverage refinancing risk during economic distress. In addition, investors outside the U.S. may be subject to tax on effectively connected income (ECI) if they invest in a direct lending vehicle with leverage.
