Private Credit Offers High Returns With Significant Risks

Private credit means lending money directly to companies instead of only using banks.

Companies may use it when they need a loan designed for their specific situation.

The returns can be higher than ordinary lending, but higher returns usually mean higher risks.

Loans to healthy companies are generally less risky than loans to startups or financially troubled companies.

Lenders study a company’s cash flow to see whether it can repay the money.

They also examine whether the company’s owners have treated other lenders and business partners honestly.

Assets such as land, equipment, or shares may provide protection if repayment problems occur.

Investors should understand that their money may be unavailable for several years.

Shantanu Sahai says investors should focus on the risk they can accept before looking at the possible return.