Private credit means lending money outside public bond markets - to companies, property projects or individuals - usually directly or through a platform or fund, with no easy way to sell the loan.
9 min read · Level 3
Lending is often presented as the conservative cousin of equity investing, and at the senior secured end of a well-run market it can be. At the retail end - unsecured personal loans, small business loans, development property - I think it is better understood as equity-like risk with the upside removed: you lose most of the money when things go badly and never gain more than the interest when things go well.
Private credit is lending that does not happen through publicly traded bonds or bank deposits. The main forms individuals meet:
Form Who borrows How you hold it Direct lending funds mid-sized companies units in a fund, often locked up Peer-to-peer platforms individuals, small businesses fractions of many loans via a platform Property lending developers, landlords loans secured on property, via platforms or funds Semi-liquid credit funds mixed fund shares with periodic redemption
In every case you are owed money. Your return is the interest the borrower pays, minus any losses when borrowers do not repay, minus fees. Unlike a bank deposit, there is usually no government guarantee. Unlike a listed bond, there is often no market where you can sell the loan quickly.
Where you stand in the queue matters. A senior secured loan is repaid first and backed by specific assets. A junior or unsecured loan is repaid only after senior lenders, if anything is left.
When you invest through a platform or fund, you also depend on that intermediary to assess borrowers, collect payments, pursue recoveries and keep client money separate.
Because private credit is often marketed with the words of safety - income, secured, fixed rate - while carrying risks deposits and government bonds do not. Higher interest is compensation for real credit risk and illiquidity, not a free improvement on cash.
It also matters that your return has a ceiling and your loss does not. The best outcome on a loan is being repaid with interest. The worst is losing most of the principal.
This is educational information, not investment, securities or financial advice. Rules differ by country and change — get advice from a qualified professional in your jurisdiction before acting.
Educational, not personalised financial advice. Nothing in the Investor Academy is a recommendation to buy, sell or hold anything — what is right for you depends on your own circumstances and the rules where you live.
Sources: UK FCA - information for consumers; U.S. SEC - Investor.gov; FINRA - investor information
The same 10,000, three homes.
Holding Interest What protects you Can you exit? Bank deposit 4% deposit guarantee to a limit yes, usually immediately Listed investment grade bond fund 5% diversified issuers yes, daily P2P small business loans 10% borrower repayment, platform often no, or at a discount
The P2P loans pay more because a meaningful share of borrowers may not repay, recoveries may be slow, and the money may be hard to get back early. The 10% is a starting figure before those losses.
Comparing a private lending rate directly with a savings rate. The savings rate is close to what you receive; the lending rate is what borrowers are supposed to pay before defaults and fees.
Write whether the loan is senior or junior, secured or unsecured, and what assets back it.
Check whether you can sell or redeem, how long it takes and what discounts or limits apply.
Confirm the platform or fund's regulation, how client money is held, and what happens to loans if it fails.
When evaluating any lending platform, credit fund or loan note offering higher interest than deposits or bonds.
When you need the money back on short notice, want capital safety, or cannot assess the borrowers or the intermediary.
Several peer-to-peer lending platforms in the UK and elsewhere have entered administration or wound down their lending books, with investors waiting years for recoveries through administrators. The UK FCA tightened rules for P2P platforms in 2019, including requirements around marketing to retail investors and wind-down planning.
Ask what happens to your loans and repayments if the platform stops operating, and how long recovery would take.
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