Private Credit

Overview of Private Credit

What Is Private Credit?

Private credit can be defined as non-bank lending. This is a broad category of lending where investors, such as funds or individuals, make direct loans to companies or individuals. This enables private credit lenders to bypass many of the regulations and restrictions imposed on traditional banks.

How Private Credit Differs from Traditional Bank Lending

Private credit differs from traditional bank lending in several ways. Firstly, and most obviously, private credit lenders are often asset managers or funds as opposed to High Street banks. Secondly, private credit has much more flexibility in its lending criteria. Given the fact that they do not accept deposits from retail investors, private credit lenders are not subject to the same regulations as traditional banks. Finally, private credit investors often seek alternative investments, such as distressed assets or asset-backed lending. Overall, private credit is not subject to such harsh underwriting criteria and can be tailored to suit the needs of a specific transaction.

When Private Credit Is Appropriate:

Transitional or Complex Situations

Private credit is a popular form of funding for clients looking to bridge a temporary gap in funding when they have an immediate funding requirement and are still awaiting another source of funds. Some common examples include new asset acquisitions, quick business transactions, or time-sensitive investment opportunities. Moreover, private debt is a popular alternative to traditional funding sources such as high street banks, specifically for transactions involving non-standard assets, complex jurisdictions or ownership structures, and complex client profiles.

Growth, Acquisition and
Refinancing Scenarios

The flexibility, speed, and certainty of private credit make it a popular form of finance for businesses and individuals looking to grow their businesses, acquire new assets, or refinance their existing facilities. Private credit can provide businesses with liquidity to grow their businesses, invest in new markets, or fund their working capital. Moreover, private credit can provide quick access to finance to take advantage of new acquisitions.

Time-Sensitive or Bespoke
Capital Requirements

Private credit lenders are generally much faster and more flexible than traditional lenders, making them a popular choice for borrowers looking to access capital quickly. With this in mind, private credit is often the preferred form of finance for time-sensitive cases.

Types of Private Credit Solutions

Senior Secured Private Credit

Senior secured private credit sits at the top of the capital structure, offering lenders the lowest risk and, as such, the lowest pricing.

Mezzanine and Structured Credit

Mezzanine private credit is used to bridge the gap between the senior debt facility and the borrower’s equity contribution. Given its position behind senior debt in the capital stack, its pricing is generally higher than senior debt, reflecting its higher risk profile.

Asset-Backed Private Credit

Asset-backed private credit does not rely on cash flow or income and is secured primarily against the specific asset. Asset-backed private credit can be secured against real estate, luxury assets, or investment portfolios, making it a popular option for high-net-worth individuals.

Special Situations and Opportunistic Credit

Transactions falling outside of traditional lending criteria would be categorised as special situation or opportunistic transactions. Some lenders specifically target these types of transactions given their higher potential returns.

Key Considerations in Private Credit Transactions

Valuation and Credit Risk

Valuations are key parts of any transaction, including private credit. Valuations are commissioned by lenders in order to reduce their exposure to risk by ensuring they have accurate data on which to base their lending decisions. Most lenders will apply conservative valuations for opportunistic or non-standard assets in order to further mitigate their risk.

Security Packages and Covenants

Security packages are heavily scrutinised by lenders to ensure that they have adequate downside protection throughout a transaction. Common security packages include a charge over any assets involved in the transaction, share pledges, or personal guarantees from the borrower.

Exit Strategy and Repayment Profile

A clearly defined exit strategy is crucial to any private credit transaction. Lenders will scrutinise the borrower’s exit strategy, ensuring that the borrower is well placed to repay the loan at the end of the term.

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How Silver Oak Capital Can Help

Access to Specialist Private Credit Lenders & Funds
Our vast lender network enables us to source the best loan products from the best lenders in the market, providing our clients with cheap access to flexible loan products.
Experience With Complex Client Profiles
Silver Oak Capital has an in-depth understanding of the real estate debt market in the UK, enabling us to advise our clients on the most suitable solutions, giving them peace of mind.
Independent Advice
Client satisfaction is at the heart of what we do, so when we provide advice to our clients we ensure that it is correct and tailored to their situation. In doing this, we ensure that our clients have access to independent, situation-specific, sound advice.

FAQs

What types of borrowers use private credit?

Private credit is regarded as a highly flexible form of finance, making it a popular choice for a wide variety of borrowers, from businesses to high-net-worth individuals. Private credit is especially attractive for non-standard transactions, including those involving:

Borrowers with non-standard profiles
Assets with complex ownership structures or offshore owners
Time-sensitive cases

How quickly can private credit be arranged?

Private credit is much more flexible than traditional bank finance and is therefore subject to an expedited arrangement timeline. Where traditional bank finance can take anywhere between 4 and 8 weeks, private credit can be arranged, in some cases, in 2–3 weeks, making it an attractive option for time-sensitive deals.

Is private credit more expensive than bank finance?

Yes, private credit is generally more expensive than bank finance due to its increased flexibility and bespoke structuring. With this in mind, private credit should be viewed as an alternative to traditional bank finance, used for cases that do not fit within the lending criteria of high street banks.