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How And When To Consider Private Debt In The Current Environment

24th Jul 23 - 5 MIN READ

Interest rates are generally on the rise as central banks continue to try to curb inflation. Mortgages are especially in focus in rising interest rate environments due to increased monthly payments when mortgage holders refinance and because lenders write fewer mortgages, as we’re seeing in the current climate. However, it’s not just mortgages that are affected. Every part of the lending market is impacted: money is simply more expensive, and lenders are more cautious in their approach to writing loans for everything from a mortgage to securities-backed lending or corporate finance. 

When conventional lenders and banks become more conservative in their approach to writing loans, private debt comes into its own. The lenders that offer these loans often have a more holistic approach to underwriting, have more flexible lending criteria than banks, and can write loans in more complex situations. This will often mean they can offer loans for uses or in scenarios banks cannot, they can move faster to complete transactions. They can also consider lending in cases where a borrower has been turned down for a loan because they don’t meet certain parameters set by a bank, despite having a quality background and case for borrowing.

 

What Is Private Debt?

Private debt has such a broad definition and encompasses many different loan and lender profile types, so it can seem irrelevant to individuals or businesses. However, it is one of the most flexible and advantageous types of lending available, especially for anyone wanting to draw down loan capital quickly or with an unusual or ambitious requirement for borrowing that makes a conventional loan (usually offered by a bank) impossible to access.

Essentially, private debt is nothing more complicated than a loan or other type of credit offered by a non-bank lender. Whoever the creditor is (lenders can range from boutique, privately owned lenders to large companies, hedge funds or high-net-worth individuals), the credit is always issued as a loan: the lender doesn’t take shares or ownership in the company or opportunity. 

Private debt usually has all the features of a bank loan: an interest rate, a term, defined security and fees, charges, conditions and covenants. Individuals or businesses can use these loans. 

 

Why Consider Private Debt?

  • Private lenders can consider more unusual or ambitious plans that aren’t suited for conventional loans
  • The underwriting process can move faster than with conventional (i.e., bank) lending, meaning you can draw down the funds faster
  • Various asset classes (i.e., commercial or residential property, corporate assets, securities, cryptocurrencies, luxury assets) can be used as collateral for a loan. In some cases, multiple assets can be used as security in the same transaction to increase the loan size
  • Private debtors tend not to offer products, instead writing loans that are ultra-specific to your requirements, for example, short-term loans of just a few days or weeks if this is what you need
  • Private debt can be an excellent option to explore if you’ve got a solid financial background but don’t meet conventional lenders’ lending criteria (i.e., you are asset rich but have little income or you have a non-critical gap in income)
  • Lenders come in many different forms and can be large, non-bank institutions, peer-to-peer lending, loans from high-net-worth individuals 

 

How To Use Private Debt

One of the advantages of private debt is that loans can be used for almost any reason and in any situation. Where a mortgage, for example, can only be used to purchase a property, private debt can be used in different scenarios and for an almost unlimited number of reasons. It can be an advantageous avenue to explore if you can’t raise finance through a mainstream lender. 

Because ‘private debt’ is such a wide-ranging term which covers different types of loans and lenders, each deal tends to be unique. As brokers, we will look at what you want to achieve, the security you have to put forward, how long you want to borrow for, and what you want to use loan capital for. Any time bank lending becomes more conservative, non-bank lenders come into their own. 

Plenty of individuals and businesses offer loans under the umbrella of ‘private debt’, but not all of these players advertise their services (this is mainly when it comes to high-value peer-to-peer lending offered by high-net-worth individuals who usually require personalised introductions). This means you will need a broker to approach these players on your behalf. In other cases, the specificity of your requirements will mean we will need to reach out to a lender that specialises in a particular type of loan, security, or with specialist expertise (i.e., international entities and so on). With unparalleled access to all the players that offer private debt, we will approach lenders and negotiate on your behalf to secure the best deal for you and to ensure the transaction is as 

One of the essential elements to consider is ensuring you are entering into a properly negotiated deal and borrowing from a reputed lender that meets all their legal obligations. You will also want a party working in your best interest – in this case, Enness – to ensure everything is in order contractually, legally and from a regulatory perspective regarding your security, documentation, negotiation of terms and any ancillary paperwork. 

 

Enness As A Private Debt Broker

We help individuals, families, entrepreneurs, and businesses access the best private debt deals available. When private debt is an ideal solution for a client, we source competitive offers. Depending on what’s needed, we can do this from multiple lending sources – be these larger non-bank lenders that specialise in a particular part of the market like bridging loans, or alternative financiers, high-net-worth individuals and boutique players that offer loans that can be deployed for any number of purposes. We can broker private debt across real estate, securities financing, corporate finance and bridging loans. 

 

 

The views and opinions expressed in this piece are those of the author and do not constitute advise or a recommendation, nor do they necessarily reflect the official policy or position of Enness. They are also not intended to indicate any market or industry viewpoints, or those of other industry professionals.

The views and opinions expressed in this piece are those of the author and do not constitute advise or a recommendation, nor do they necessarily reflect the official policy or position of Enness. They are also not intended to indicate any market or industry viewpoints, or those of other industry professionals.