Private credit refers to loans or debt financing provided by non-bank entities such as private funds, asset managers, or institutional investors. Unlike public debt, which is traded in open markets, private credit deals are negotiated directly between lenders and borrowers.
In simple terms, private credit involves investors lending money to companies that need capital but prefer not to go through traditional banking or bond markets.
Private credit funds pool money from investors, such as pension funds, family offices, or high-net-worth individuals, and lend it to businesses. The borrower pays interest and principal over time, generating income for investors.
This setup benefits both sides. Businesses get access to customized financing quickly, while investors earn attractive yields that are often higher than those offered by traditional fixed-income investments.
Funds provide loans directly to small and mid-sized companies that may not qualify for bank loans.
A hybrid of debt and equity financing where lenders may convert the loan into equity if the borrower defaults.
Investing in the debt of financially troubled companies at discounted prices with the aim of recovery or restructuring.
Targeted at companies facing unique circumstances like mergers, acquisitions, or turnaround opportunities.
Private credit has become increasingly popular in recent years due to several key factors:
According to a Preqin report, global private credit assets surpassed USD 1.5 trillion in 2024, making it one of the fastest-growing segments of private markets.
Consider an Indian manufacturing firm planning to expand operations. Traditional banks might hesitate to lend due to collateral limitations or strict criteria. A private credit fund steps in, offering a structured loan with flexible repayment terms. The company secures growth capital quickly, while the investors in the fund earn a steady interest income—creating a win-win situation.
While returns can be rewarding, private credit carries risks:
Investors usually mitigate these risks through careful due diligence, diversification, and experienced fund management.
Feature | Private Credit | Public Debt |
---|---|---|
Accessibility | Limited to institutional or accredited investors | Available to all investors |
Liquidity | Low | High |
Return Potential | Higher | Moderate |
Transparency | Lower | High |
Deal Structure | Customized | Standardized |
Private credit has evolved from being an alternative asset class to a mainstream investment avenue. It plays a vital role in bridging the financing gap for businesses and offering investors an opportunity to earn superior returns. As India’s financial ecosystem matures, the private credit market is expected to expand further, contributing to both economic growth and investor diversification.
In essence, private credit represents the growing intersection of innovation and opportunity in modern finance, fueling businesses while rewarding those who back them.
Private credit refers to loans provided by non-bank lenders to companies that need financing but do not raise funds through public markets.
Typically, institutional investors, family offices, and high-net-worth individuals invest in private credit through specialized funds.
Private credit involves lending money, while private equity involves buying ownership stakes in companies.
Yes, like all investments, private credit carries risks such as borrower defaults and low liquidity, but it also offers higher potential returns.
Tighter bank lending norms, rising demand for flexible financing, and increased investor appetite for higher yields are key drivers of private credit’s growth in India.