What is Private Credit? The Basics Explained

As a business owner, you likely understand that one of the biggest challenges of scaling your company isn’t just the inability to secure funding, it’s also the inability to access non-traditional sources of capital in the first place. Right? Absolutely. You know we’re right, and so do we, because we’ve been where you’ve been.

And, the numbers are there to back this up, too. During the course of the pandemic over 40% of small business owners in the US haven’t been able to obtain any capital like loans or lines or credit from traditional lending institutions. If you’re part of that 40% then you might be looking into whether or not private credit is worth it for you.

While you might think that private credit is your own private credit, like in the form of credit cards, it’s actually a bit different. That shouldn’t scare you off of it, though! It’s pretty simple to understand and easy to access (at least through Wealth Stack). 

Follow along as we explain what private credit is and how you can use it to scale your business.

Private Credit Explained

Essentially, private credit is an alternative way for businesses to raise money (capital). While this sounds a bit similar to private equity, and it is in some ways, it’s a different thing entirely. 

With private equity, an investor invests in a company and has equity in it, which is a part of all of the company’s value. With private credit, an investor is lending money to a business in exchange for interest payments. This is similar to a bank loan, really, but the main difference is that it’s called private credit because it’s, well, private.

When a company is publicly traded, for example, they’re offering shares of the business to the general public. With private credit, businesses usually work with one lender to gain access to credit (the loan) in exchange for the lender receiving interest payments. 

For lenders, this is often a higher-yield investment than traditional investments. For business owners, it’s a much easier way to access the funding they need on the terms they want.

PIMCO defines private credit as: “Privately originated or negotiated investments, comprising potentially higher yielding, illiquid opportunities across a range of risk/return profiles. They are not traded on the public markets.”

Why is Private Credit Good for Small Business Owners?

In the modern world of business, it is crucial that business owners have easy access to capital in order to scale their operations (in fact, a lack of funding is the No. 1 reason why most startups fail). 

The problem with that, though? Most traditional banks and other forms of traditional capital are difficult to access. Banks take too long to process the application or require a great deal of paperwork from you before they’ll even consider giving you a loan. That’s part of the reason why so many people turn to private lenders who offer more flexible financing options such as small business loans (either startup or expansion) and venture debt options.

So, why would a small business owner look to raise capital via private credit? It’s often one of the only options for small and new businesses who can’t access public credit markets. This is because private credit lenders and investors provide access to the cash in exchange for the full amount returned plus interest.

Overall, businesses with lots of potential but little traction to show due to a lack of funding can turn around and pay off the loan quickly with little to no risk that other investments like stocks and real estate involve. And, that’s what makes private credit great for small business owners scaling past the $5 million revenue mark.

Ready to join the Wealth Stack Growth Pack and access capital introductions and professional financial advice? Click here to get started.

How Does Private Credit Work for the Borrower?

Depending on where you’re accessing the loan from, it can be as easy as logging onto a platform and connecting with an investor offering private credit. However, the first barrier of entry is usually just that: access to the platforms and places where these types of investors are.

With the Wealth Stack Growth Pack and platform, we help destroy that barrier, specifically for small business owners with $2-5 million in annual revenue who might not have access to traditional loans from banks who are looking to partner with larger companies.

With Wealth Stack, you simply have to sign up for the Wealth Stack Growth Pack to receive access to our business owner dashboard. Once you have access, you’ll be able to view your business’ financial information, receive financial assessments from an investment banker, and access capital introductions from our list of verified, vetted investors.

Ready to join the Wealth Stack Growth Pack and access capital introductions and professional financial advice? Click here to get started.

What Are Some Other Alternative Sources of Capital?

It’s important to mention that even though you might understand what private credit is, it’s not the only option small businesses have when it comes to alternative sources of capital. Some other options include…

Venture Debt

A lot of startups talk about looking for venture capitalists, or VC, to help fund their growing business. However, what most people don’t talk about is venture debt as a way to complement the equity you’re raising. Venture debt is a type of loan you can access via non-bank lenders (and banks, too, but we’re talking about non-traditional capital here!) that is used to fund early-stage, high-growth companies that already have venture capital backing.


Another option is to apply to access capital via the SBA’s SBIC program. SBIC stands for Small Business Investment Company, and the fund is a privately owned and managed investment fund that's licensed and regulated by the SBA. This is often a much faster and easier route than applying to borrow money from a private debt fund, simply because the process is done through the Small Business Administration.

MRR Loans

MRR loans are pretty common for smaller, growing startups. However, they are only for businesses with models that allow them to have monthly recurring revenue (hence the abbreviation MRR).

MRR loans, or lines of credit, refer to “monthly recurring revenue” lines of credit. With this type of loan, the financial institution lends money to you based on the amount of monthly recurring revenue your business earns. Basically, a financial institution looks at your recurring revenue. Then, they lend you a percentage of that, using the future revenue as collateral.

Join the Growth Stack Wealth Pack

What is private credit? It’s one of the many options available to you as a small business owner if you’re looking to finance your company’s growth in a non-traditional way. While it might be hard to understand exactly what private credit is if you’re not financially savvy, that’s okay! That’s what we’re here for. And, we offer packages that include the management of it all, too.

The Wealth Stack Growth Pack offers you the ability to have fully-managed SIMPLE IRA plans for all of your employees on top of the following digital advisory services:

  • Access to hundreds of videos and articles that help provide you and your employees with a solid financial foundation.
  • Access to the Wealth Stack app with your own individual retirement account access. This includes the ability to monitor stocks, view new financial updates, and more.
  • Get the tools and resources you need to learn how to invest in your employees. These will help you attract and retain top talent. And, they'll help you access the funding you need at the terms you want.
  • Exclusive access to our founder and a former investment banker. He will personally assess your business to help you increase its value.
  • Access to a platform where we will provide you with capital introductions to investors and alternative sources of funding.

Learn more about the Wealth Stack Growth Pack here.