TLDR:
Lending is the act of providing money, property, or other assets to a borrower for a defined period, with the expectation of repayment with interest.
Types of Lending
Lending takes many forms: traditional bank loans, peer-to-peer (P2P) lending platforms, venture debt for funded startups, revenue-based financing repaid via revenue share, asset-based lending secured by inventory or receivables, and DeFi lending where smart contracts replace traditional intermediaries. Each structure offers different risk profiles, costs of capital, and covenants.
Lending vs. Equity Financing
Debt and equity represent the two primary sources of capital for businesses. Debt is generally cheaper because interest is tax-deductible and lenders take less risk than equity investors. However, debt requires regular payments regardless of business performance and creates default risk. Equity is more expensive but flexible — investors share both upside and downside. Most growing companies use a mix of both.
Regulatory Framework
Lending is heavily regulated to protect borrowers and ensure financial system stability. Regulations cover usury limits, disclosure requirements (such as truth in lending), fair lending practices, anti-money laundering compliance, and licensing for non-bank lenders. Startups in the lending space must navigate complex state-by-state licensing requirements in the US and similar frameworks internationally.