What is private credit and how does it work?
Answer: Private credit is lending provided by nonbank lenders through privately negotiated loans rather than public bond markets. Investors typically pool money in a fund whose manager selects borrowers, negotiates terms, and collects interest and principal repayments. Investors seek income but face risks, including borrower defaults and limited ability to withdraw their money.
By Edward Papier, CIMA, CF2, CM&AA ยท Last updated November 5, 2026
What is the difference between private credit and private equity?
Private credit lends money to companies and earns interest, while private equity buys ownership and earns a share of growth when the company is sold. Lenders are usually repaid before owners if a company struggles, so private credit typically aims for steadier income and lower risk. Private equity aims for higher long-term gains, with more uncertainty along the way.
Private credit vs private equity
Private credit | Private equity | |
|---|---|---|
What you own | A loan | A share of the company |
How you earn | Interest payments | Gains when the company is sold |
Typical goal | Income | Long-term growth |
If the company struggles | Lenders are paid first | Owners are paid last |
Why has private credit grown so quickly?
After the 2008 financial crisis, banks faced tighter rules on lending to midsize companies. Nonbank lenders stepped in, often offering faster decisions and more flexible terms. Investors were drawn by floating-rate income that has generally paid more than public bonds of similar credit quality. Pensions, endowments and, more recently, individual investors have all increased their allocations.
What are the risks of private credit?
The main risks are borrower defaults, limited liquidity and valuation. Private loans do not trade daily, so their prices are estimated by managers rather than set by a market. Many loans go to companies with high debt, and an economic slowdown can raise defaults. Manager skill in choosing borrowers and negotiating protections matters a great deal.
Talk to us
To talk through your own situation, please call 212-697-3930, email ep@amadeuswealth.com, or schedule a meeting at calendly.com/ep-awa.
Edward Papier, CIMA, CF2, CM&AA
President, Amadeus Wealth Alternatives, Hackensack, NJ
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