Why Private Debt – Everything You Need to Know

If you are reading this blog, then it is pretty obvious that whether you are looking for a private loan or looking to invest in private debt. No matter what your case is, you need to be well versed with everything related to private debt before you make any decision.

In simple words, private debts are mostly used for refinancing, growth of capital, and for the acquisition of other companies. It has something to offer to both the investor and the borrower. The investor invests because the chances of getting a high-interest rate are higher, and the borrower gets the flexible structuring breadth.

private debt-businesses

In this blog, I’ve narrowed down some of the very important things that you need to know about types of private debt.

Here you go:

Mezzanine Debt

It is a type of private debt that is hybrid in nature. It is a hybrid debt that can be used for equity financing. It usually consists of stock options. Subordinate debts can also be included in this category. It is a very secure option for the investors as they have the opportunity to convert into shares in the event of default or repayment. Similarly, it has many benefits to offer on the borrower end.

Direct Lending

Direct lending, as the name explains, is the process of lending money to companies directly. This type of private debt eliminates all the needs of involving any third party in the deal. For example, you’ll not need to make any broker or a bank a party in your deal. If you don’t want any immediate intermediaries, then a direct loan is the best option for you both as a lender and the borrower.

Distressed Debt

Distressed debt is on a little risky side of the spectrum. It is a debt that is given to the companies in distress that have the prospect of a successful restructuring. It is a kind of debt that can be called high-risk debt. However, if everything goes as planned, this type of debt can be high yielding in terms of profit. So, the entire success of this debt depends on the success of corporate restructuring.

Venture Debt

Some people like to invest in new and unique things. If you are one of those people, then venture debt is just the right kind of investment for you. Unlike traditional bank loans, it is a type of loan granted to startups and growth companies that do not have positive cash flows or significant assets as collateral. As the startup culture is pretty successful these days; therefore, it is not as risky an investment as it may sound.

It doesn’t matter if you are a lender or a borrower. You always need to do your complete research before making any decision about the debt that you are about to give or receive, respectively. So, make sure that you are choosing the right category if you don’t want to suffer any loss.