Established businesses (with assets and a trading history) looking for growth finance or a buyout
Private debt is an umbrella term that refers to debt products that are financed by non-bank institutions. Unlike publicly listed corporate bonds, private debt products are usually illiquid and not issued or traded on public markets. Private debt (also known as private credit) includes direct lending, mezzanine finance and special situations.
If you’re an established business looking for growth finance or a buyout you might want to consider either direct lending or mezzanine finance (a hybrid of debt and equity).
You could consider private debt if you are looking to raise working capital for business growth (see growth finance), infrastructure, real estate development or a buyout.
• Retain equity – retain control. Once you repay the principal and interest accrued, you keep same amount of equity. Unless it is a financed through Convertible Loan Notes (CLNs), which are debt instruments that can convert into shares in the future.
• Available to lower credit history – although the interest charged may be higher.
• Currently unregulated – exposes you to higher risks, lender and borrower alike.
Mezzanine finance is effectively a business loan with a twist. Arrangements can differ but in most cases if you can’t pay back the debt within a pre-agreed timeframe then the debt becomes equity. In other words, the lender gets a share of equity in your business if you default on your loan – you’re using equity as your security. Mezzanine finance is often subordinated to bank debt.
In a ‘special situation’, i.e. if your business is going through a significant change (or you are facing bankruptcy) you may welcome an approach from a special situations fund.
Special situations funds come under the banner of private debt funds – your investors (e.g. hedge funds, private equity companies and other intuitional investors) will usually take a controlling stake in your business.
Direct lending comes under the umbrella of private debt (also known as private credit), which includes mezzanine finance and special situations.
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