Wealth Systems: Direct Lending, Part II

The Oldest Wealth Engine

In Part I we covered the history, terminology and operating mechanics of a Direct Lending business.

The first rule of this business model is simple:
do everything you can to protect your principal

You are extending cash and other resources in exchange for repayment including interest in the future.

You can be creative in the ways you mitigate risk — using covenants and legal mechanisms. You can carve out upside for yourself in tax efficient ways… but make no mistake - loss of principal is a constant risk, and one big loan that fails to return can cause havoc to your P&L.

Designing a business model for a direct lending company that focuses on deploying capital to entrepreneurs, generating current income, and incorporating multiple layers of risk mitigation is quite an intricate task.

These are the elements you need to think though when designing your own di…