The Rise of Private Credit: A Smart Alternative to Traditional Bank Loans

Introduction

Business owners are increasingly turning to private credit as an alternative to traditional
bank loans. This sophisticated funding option offers unique advantages that can better align
with your business objectives and growth plans.

Private credit refers to loans provided by non-bank institutions, such as specialized lending
funds, family offices and asset managers. The facilities these lenders offer can be tailor-made
to a borrower’s needs and tend to be much more flexible than traditional bank loans.

Key Benefits for Businesses:

Flexible Financing Structures

Private credit lenders can customize financing solutions to match your business's specific
needs. While banks often require standardized terms and conditions, private lenders can
adjust payment schedules, covenant structures, and other terms to align with your
company's cash flow patterns and growth trajectory.

Faster Decision-Making and Deployment

Private credit providers typically operate with streamlined decision-making processes.
Without the multiple layers of approval common in traditional banks, they can evaluate
opportunities and deploy capital much more quickly – often in weeks rather than months.

Longer-Term Partnership Approach

Private credit providers often take a more relationship-driven approach. They typically
invest time to understand your business model and growth strategy. This deeper
engagement allows the lender and borrower to optimise the chance of success for the
business, and not just the return to the lender. Lenders also tend to grow alongside your
business, presenting opportunities for follow-on funding over time.

Higher Leverage Options

Private credit lenders may be willing to provide higher leverage levels than traditional
banks as they are not regulated as strictly. This makes private credit particularly attractive
to businesses with few fixed assets but ambitious growth prospects.

Less Restrictive Covenants

While maintaining prudent risk management like any good lender, private credit providers
often offer more flexible covenant packages than traditional banks. Again, by tailoring
covenants to your specific business model, private lenders can reduce their risk while
allowing your business the room it needs to grow.

From our experience in the market, private credit typically works best for:

• Mid-sized businesses with stable cash flows and proven business models.
• Companies seeking growth capital or acquisition financing.
• These are businesses that may not meet traditional bank criteria but have strong underlying fundamentals.
• Organizations requiring quick execution for time-sensitive opportunities.
• Companies looking for a more partnership-oriented lending relationship.

The global private credit market has grown to 12 times its size since the Global Financial
Crisis. Recent estimates put the market size at $1.5 trillion AUM with expectations of
growing to $2.8 trillion by 2028. The UK currently has the second biggest private credit
market, after the US. This expansion has been driven by investors seeking yield in a
low-interest-rate environment and businesses valuing the flexibility of private credit solutions.