What is Private Credit?
Private credit is an asset class of privately negotiated loans and debt financing from non-bank lenders and does not include any publicly traded bonds or other debt securities. . In other words, it is any debt investments that are not financed by banks and are not issued or traded in an open market. The term ‘private’ refers only to the entity providing the debt and not to the borrowing entity, which could be privately held or publicly listed.
Like traditional forms of debt capital, private credit is typically used by borrowers to obtain capital for:
- Meeting working capital needs
- Financing business expansion activities like sales and marketing
- Funding infrastructure or real estate
- Acquiring new talent, markets or intellectual property
- Cleaning up the cap table or buying out tired investors
Institutional investors have invested in private credit as it has historically exhibited a low degree of correlation with public equity markets, thereby stabilizing their diversified returns over their longer investment time horizons.
How Private Credit Differs from Traditional Debt
Unlike traditional forms of debt capital, private credit loans feature attractive structuring elements that, when compared to other sources of capital, are highly customizable, secure and attract a relatively higher interest rate.
Currently, over 70%* of the investor capital flowing into private credit comes from institutional investors, but availability is increasing with the introduction of publicly traded businesses like Montfort that offer private credit opportunities.
To find out more about private credit, please speak to your financial advisor or visit Montfort.com.