Blog
Private Credit
Private credit (also called private debt) is lending provided by non-bank lenders directly to companies or projects. Instead of buying public bonds through markets, investors (private funds, insurance companies, pension funds, family offices, or wealthy individuals) make loans that are not traded on public exchanges. These loans often offer higher yields than public debt but are usually less liquid and require more active management.
How private credit works — step-by-ste
Strategy & investor raise
A private credit manager (a firm or fund) defines a strategy (e.g., direct lending to mid-market companies, mezzanine finance, distressed debt, venture debt). The manager raises capital from investors into a fund or credit vehicle.
Sourcing deals
The manager finds borrowers via relationships (bank referrals, PE sponsors, corporate networks). Typical borrowers: mid-size companies needing capital for buyouts, acquisitions, growth, refinancing, or turnaround.
Initial screening
Quick business overview: sector, size, purpose of loan, and basic credit metrics. Decide whether the opportunity fits the fund’s mandate and risk appetite.
Due diligence & underwriting
Deep dive into borrower financials, cash flows, management, market position, legal structure, and collateral. Model cash flows to check ability to pay interest and repay principal. Assess downside via stress tests and recovery scenarios.
Structuring the loan
Decide loan type and terms: senior vs subordinated, secured vs unsecured, amortizing vs bullet, interest type (fixed, floating, PIK). Set covenants (financial tests the borrower must meet) and events of default. Determine fees (arrangement fee, commitment fee) and prepayment terms.
Pricing & approval
Set interest rate/spread based on credit risk and market conditions. Internal investment committee reviews and approves (or rejects) the deal.
Documentation & closing
Legal documents are drafted: loan agreement, security documents, intercreditor agreements (if other lenders exist). Sign and fund the loan.
Monitoring & servicing
Ongoing monitoring of borrower performance, covenant compliance, and collateral value. Fund may provide operational support or negotiate amendments when borrower faces stress. The manager collects interest and fees; may handle collections if problems arise.
Exit / repayment
Loan repaid according to schedule (amortization or bullet). Refinance, sale of company, or default/restructuring are possible exit scenarios. If default occurs, the lender enforces security, negotiates restructuring, or pursues recovery.
Common private credit types
Direct lending / senior loans — first lien, secured, lower risk in private credit.
Mezzanine — subordinated debt with higher yield, often with equity kicker (warrants).
Unitranche — single blended loan that combines senior + mezzanine features.
Venture debt — loans to growth/startup companies, often with warrants.
Distressed debt — buying or lending to troubled companies; higher returns and risk.
Specialty finance — asset-backed lending (receivables, equipment finance).
Key risks
Illiquidity — loans are not easily sold; long lockups in funds.
Credit risk / default — borrower may fail to pay.
Recovery risk — collateral value may be lower than expected.
Concentration risk — funds may be concentrated by sector or borrower.
Manager risk — performance depends heavily on the lender’s underwriting and workout skills.
Regulatory & interest-rate risk
Our blog post
Read our latest blog
Eldeco Infrastructure files draft papers with Sebi for ₹1,000-cr
Posted By Equity Unlisted 
10/04/2025