Using private credit to finance a project has many advantages including speed, confidentiality and certainty – features that are not as common in other forms of funding, including traditional bank loans, or public capital raisings.
By Jacquelene Pearson*
Private investors, whether major corporates, such as hedge or pension funds, family offices or high-net-worth individuals, are looking for opportunities that are flexible, innovative, reward varying levels of risk with a combination of income and yield, and, as the name suggests, are private.
Private investors or lenders are increasingly willing to provide credit to some of the world’s largest projects – across infrastructure, resources, energy, food production, technology, property, healthcare, education – you name it, and across borders.
What exactly is private credit and what are its advantages?
What is private credit?
The most common form of traditional private debt is the corporate bond or debenture. A company wishing to raise funds would issue debt, in the form of a debenture or bond, to willing investors in return for regular income (interest) payments and the promise to return the original capital investment at a designated maturity date. The higher the level of risk, the higher the investor’s expectation that their regular income payments would be at a more attractive rate than what’s on offer from, for instance, a bank term deposit.
The issuer of the bond or debenture had the use of the capital invested for the duration of the investment period but must have had the cashflow to manage the regular interest payments and a timeframe for completion of their project that ensured the return of capital to investors at the maturity of the bond or debenture.
Within the constantly evolving world of global finances, the definition of private credit is expanding. The best definition is offered by the International Monetary Fund (IMF): “specialized non-bank financial institutions such as investment funds lend to corporate borrowers”.
The IMF says the global private credit market topped $2.1 trillion globally last year in assets and committed capital. About three-quarters of this was in the United States.
According to the IMF, “This market emerged about three decades ago as a financing source for companies too large or risky for commercial banks and too small to raise debt in public markets. In the past few years, it has grown rapidly as features such as speed, flexibility, and attentiveness have proved valuable to borrowers. Institutional investors such as pension funds and insurance companies have eagerly invested in funds that, though illiquid, offered higher returns and less volatility.
JPMorgan argues that the IMF may be underestimating the true size of the industry, the bank estimates the size of the global credit market at $3.14 trillion.
Advantages
The growth in the availability of private credit gives private companies greater access to funding, particularly for large-scale and cross-border projects. Private credit providers, including Acuity Funding, are able to offer more flexible terms than conventional banks, and can structure of tailor a funding package to the needs of the borrower.
Lending periods, caveats and contract conditions can be varied for the specific circumstances of each borrower and processing times can be fast tracked.
Private credit also has advantages for investors including the opportunity to diversify away from more traditional asset classes, and higher yields than many mainstream investments. This means growing investor demand for private credit opportunities and that is good news for borrowers as more funds are available for projects.
It is, of course, best to do business with a reputable provider of private credit – an organisation that is well-established with a long-term track record of financing projects, like Acuity Funding.
Acuity Funding currently has over 200 quality projects that are being funded by Private Credit, according to founder and Chair, Mr Ranjit Thambyrajah.
“Acuity Funding operates with no bad debts or delinquent accounts. We are more than happy to place current and future investors into qualified transactions,” he said.
“Our ability to match investors with appropriate projects broadens the range of lucrative investment opportunities available for Family Offices and other sophisticated investors willing to provide private credit to our pipeline of global projects.”
Contact Acuity Funding for more information.
*Jacquelene Pearson is Acuity Funding’s content editor
