Marcus Emadi | Director at Turning Point Capital
CONTENTS
What Is Private Credit?
Private credit—also known as direct lending or non-bank financing—is capital provided to businesses by lenders other than traditional banks. This includes asset managers, private equity firms, family offices, and high-net-worth individuals.
At Turning Point Capital, we see private credit as a high-growth, alternative credit strategy that bridges the funding gap left by increasingly risk-averse banks. It’s particularly attractive in today’s environment, where businesses seek tailored financing solutions, and investors demand yield with lower volatility.
Why Private Credit Matters in Today’s Market
Since 2015, the UK private credit market has been the fastest-growing segment of business finance—outpacing leveraged loans by 2:1. Several structural trends underpin this growth:
- Post-pandemic credit constraints have reduced bank appetite for SME risk.
- Rising interest rates have made traditional loans more expensive.
- Sectors like hospitality and retail face tighter credit access from high-street lenders.
- Private lenders offer bespoke solutions that banks can’t or won’t provide.
Where traditional finance sees risk, private credit sees opportunity. Flexible underwriting, speed of execution, and tailored structuring give private credit a unique edge in supporting underserved business segments.
Types of Private Credit in the UK
Private credit is not one-size-fits-all. Depending on the borrower’s needs and the investor’s return profile, structures vary widely:
- Direct Lending
A straightforward loan issued by a non-bank lender. Terms are typically fixed or floating rate with custom amortization schedules. This is the most common private credit structure for growth-stage companies.
- Mezzanine Finance
A hybrid of debt and equity, mezzanine loans fill the capital gap when senior lenders won’t fully fund a transaction. Subordinated in priority, these loans may offer equity conversion features, enabling upside participation for lenders.
- Asset-Backed Lending (ABL)
Loans secured against receivables, inventory, or equipment. ABL is ideal for businesses with tangible assets but inconsistent cash flow.
- Special Situations / Opportunity Capital
Flexible capital provided in complex or time-sensitive scenarios—turnarounds, acquisitions, or transitional ownership structures.
How Private Credit Works for Borrowers
Private credit can be structured with flexible covenants, delayed draw features, bullet repayments, or interest-only periods—unlike rigid bank loans.
For businesses, this means:
- Faster execution
- Customized terms
- Relationship-driven underwriting
- Funding in sectors or situations banks avoid
The Investor Opportunity in Private Credit
From an institutional perspective, private credit offers:
- Enhanced risk-adjusted returns
- Low correlation to public markets
- Attractive illiquidity premiums
- Capital efficiency in Solvency II and Basel-regulated portfolios
As traditional lenders retreat from mid-market lending, institutional capital is stepping in to meet growing demand. Turning Point Capital sees this as a long-term structural shift—not a temporary trend.
Risks and Considerations
Like all credit strategies, private credit carries risks:
- Illiquidity
- Borrower default
- Recovery complexity
However, disciplined structuring, covenants, and asset coverage help mitigate these risks. Partnering with experienced originators and underwriting teams is key.
Final Thought: Private Credit as a Strategic Allocation
For both borrowers and institutional investors, private credit is no longer a niche—it’s a core tool for financing and portfolio construction.
At Turning Point Capital, we believe the continued evolution of private credit will redefine how businesses grow—and how investors generate consistent, risk-adjusted income.
Frequently Asked Questions (FAQs)
What is private credit?
Private credit refers to non-bank loans made directly to businesses, often by institutional investors or alternative lenders.
How does private credit differ from traditional loans?
Private credit is more flexible, faster to execute, and often structured for complex or niche scenarios where banks may be unwilling to lend.
Who provides private credit?
Asset managers, private equity firms, family offices, and high-net-worth individuals are the primary providers.
Is private credit risky?
While private credit carries illiquidity and default risk, strong underwriting and asset-backed structures can mitigate exposure.
Why are institutional investors increasing allocations to private credit?
For higher yields, lower volatility, and portfolio diversification—especially in a higher-rate, lower-growth environment.
