Private credit.

In plain English

Private credit is lending done by funds, insurers, and other non-bank investors, with terms set one-on-one between lender and borrower. Because the loans are not sold into a public market, there is no daily price, and the fund carries the loan at an estimated value until it is repaid or written down. Borrowers are often mid-sized companies that want speed and certainty, and are willing to pay a higher rate to avoid the syndication process. Rates are usually floating, so the lender's income moves with short-term benchmark rates. The category grew as bank lending rules tightened, moving some corporate borrowing outside the regulated banking system.

01Why it matters

Private credit funds are increasingly sold to individual investors through vehicles that promise steady income, and the trade-off is that the money is hard to get out and the values are estimates.

02The math, step by step

Say a fund lends $25,000,000 at a floating rate that starts at 9 percent. Annual interest is $2,250,000. If the benchmark rises by 1 percentage point, the rate becomes 10 percent and interest becomes $2,500,000, an increase of $250,000 without renegotiating anything.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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