Gareth Henry, a seasoned investment advisor, articulates that private credit is an alternative form of funding investments that cannot secure the ordinary bank credit.
However, the financial market offers many kinds of private credit, making it hard for entrepreneurs to choose a type that suits their unique business needs.
Are you one of those entrepreneurs? If yes, Gareth Henry has scrutinized the common types of private credit to help you make an educated decision.
Typical Types of Private Credit
- Mezzanine Loans
Mezzanine loans are a debt/equity hybrid form of credit. Gareth Henry proposes mezzanine loans for small and mid-sized companies with excellent growth potential. Moreover, the credit would be an attractive option for investors who need some capital to make mergers and acquisitions. The loans carry high-interest rates due to their unsecured nature.
- Senior Loans
Gareth Henry commends senior loans for small and mid-sized companies that are looking to fund buyouts, refinance existing debts, as well as those that wish to expand their businesses. Unlike the mezzanine debt, senior loans are secured by the company’s assets.
- Capital Appreciation Private Credit Funds
Henry recommends this type of private credit to entrepreneurs who are in dire need of funds, yet they are unwilling to give up the control of their company to the creditor. This type of private funds contains a combination of debt and equity-like instruments, and noteworthy collaterals like liens.
- Distressed Credit
According to Gareth Henry, distressed credit is ideal for companies who cannot access other forms of financing due to a negative credit. In this case, lenders will offer to buy the distressed company’s debt instruments. Afterwards, the lender will cooperate with the company’s managers to formulate strategies that would improve the distressed company’s productivity.
- Specialty Finance
Specialty financing is offered by lenders who specialize in a specific niche. In most cases, the finance firms help rapidly-growing small and mid-size companies who need funds to purchase equipment, purchase future payment streams, as well as those that wish to expand their services.
The financing firms collaborate with a team of specialists who help them meter a company’s future financial health before financing it.
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