Published 22 September 2026 | By FJP Investment Editorial Team

Private credit has moved considerably closer to the mainstream of global finance.

Companies that might once have relied almost entirely on banks or public bond markets are increasingly raising capital privately from funds, institutions, family offices and experienced individual investors.

The basic concept is straightforward.

An investor provides debt capital to a business or project. In return, the borrower agrees to pay interest and ultimately repay the original capital under agreed contractual terms.

But private credit investing is a very broad description.

A senior secured loan to an established profitable company is not the same investment as mezzanine finance for a speculative property development. A diversified private-credit fund is not the same thing as purchasing a loan note issued by one private business.

For investors in the UK and internationally, understanding those distinctions is essential.

This guide looks at what private credit is, why the market has expanded, how returns are generated and some of the questions investors should consider before putting capital at risk.

Important: This article is for general educational purposes only. It does not constitute investment, legal or tax advice or an invitation or recommendation to invest. Private credit and alternative investments can involve substantial risks including illiquidity, borrower default and partial or total loss of capital.

What is private credit?

Private credit generally refers to lending that takes place outside publicly traded bond markets and, often, outside conventional bank lending.

Rather than a company issuing bonds that trade publicly on an exchange, financing is arranged privately between the borrower and one or more lenders or investors.

Private credit can include:

• direct corporate lending;
• senior secured loans;
• property and development finance;
• real-estate bridging finance;
• asset-backed lending;
• mezzanine debt;
• growth lending;
• special situations;
• distressed credit;
• infrastructure debt; and
• other privately negotiated lending structures.

The risk can vary enormously between them.

So describing something as a private-credit investment does not tell an investor whether it is conservative, speculative or somewhere in between.

Why has private credit grown?

Private markets have expanded substantially over the past decade.

Businesses increasingly use private capital alongside — and sometimes instead of — traditional bank finance and public debt markets.

The attraction for borrowers can include:

• greater flexibility;
• faster decision-making;
• bespoke repayment structures;
• financing for unusual assets or projects;
• larger leverage than a conventional lender may provide;
• certainty of execution; and
• access to capital where banks are unwilling or unable to lend.

The Bank of England describes private markets as increasingly important sources of funding for businesses, real estate, infrastructure and other economic activity.

Its July 2026 Financial Stability Report notes that private equity and private credit markets have grown significantly and now form an important part of the wider corporate financing system.

Further information is available in the Bank of England’s July 2026 Financial Stability Report.

Why would a business borrow privately instead of using a bank?

This is one of the first questions an investor should ask.

There are perfectly legitimate reasons.

A private lender may be willing to finance:

• a company growing quickly;
• a complex acquisition;
• a property development;
• a borrower requiring a tailored repayment schedule;
• a project that falls outside conventional bank criteria;
• an asset that is difficult for a bank to value; or
• a transaction that needs to complete quickly.

Private lenders can often negotiate directly with borrowers and structure a loan around a particular commercial situation.

That flexibility has value.

Borrowers are therefore often willing to pay more for private capital than they might pay for ordinary bank borrowing.

But sometimes the higher cost also reflects higher credit risk.

Investors need to establish which explanation applies.

Where does the investor’s return come from?

Private-credit returns can come from several sources.

The most obvious is interest.

A borrower might agree to pay a fixed or floating coupon during the life of the loan.

Depending on the structure, investors might also receive:

• arrangement or origination fees;
• exit fees;
• redemption premiums;
• payment-in-kind interest;
• equity warrants or participation;
• other contractual fees; or
• a combination of these.

Whatever the structure, the economic question remains:

Can the borrower generate enough value and cash to meet those obligations?

A contractual coupon is only useful if it can actually be paid.

Our guide to fixed-return investments and the questions investors should ask looks at this issue in greater detail.

Private credit is not the same as a bank deposit

Sometimes the language surrounding private debt can make the arrangement sound deceptively simple.

For example:

Invest £100,000, receive 10% a year for three years, then receive your £100,000 back.

Mathematically, that is simple.

Economically, it is not.

A bank deposit and a loan to a private company may both involve receiving interest, but the risks and protections can be completely different.

Private-credit investors may be exposed directly to:

• the borrower’s creditworthiness;
• the success of its business model;
• asset values;
• management decisions;
• refinancing conditions;
• economic downturns;
• legal enforcement risk; and
• illiquidity.

Depending on the investment, regulatory protections available to ordinary bank depositors may not exist.

What is senior secured private credit?

Senior secured describes a lender’s position within the borrower’s capital structure.

Broadly, senior debt ranks ahead of subordinated debt and equity when claims against the borrower’s assets are considered.

If the loan is also secured, the lender may have legal security over specified assets.

That can potentially improve the lender’s recovery position if the borrower defaults.

But even senior secured debt is not risk free.

The value of the security may fall.

Other creditors may have claims.

Enforcement may take time.

And the amount eventually recovered may be lower than the outstanding debt.

First-ranking and second-ranking security

Ranking matters enormously.

Imagine a property worth £10 million.

A bank has a first legal charge securing £7 million.

A private lender then provides another £2 million secured by a second-ranking charge.

On paper, total secured lending is £9 million against a £10 million asset.

But if the property later has to be sold quickly for £8 million, the first-ranking lender may absorb most of the available proceeds before the second-ranking creditor is repaid.

Costs and accrued interest can make the position weaker again.

This is why an investor should never stop at:

“The investment is property secured.”

The next question should be:

“Where exactly does my security rank?”

What is loan-to-value?

In property-related private credit, loan-to-value or LTV is one measure investors may encounter.

If a property is valued at £10 million and secured borrowing totals £6 million, the headline LTV is 60%.

That appears to provide a 40% valuation cushion.

But investors need to understand what valuation is being used.

For a development, there may be several different values:

• current land value;
• current value of work completed;
• market value;
• gross development value;
• value assuming planning permission;
• value assuming completion; and
• forced-sale value.

A 60% LTV calculated using a projected future value is not the same thing as 60% lending against an asset worth that amount today.

Who produced the valuation?

Private-market assets do not normally benefit from the continuous price discovery available in public markets.

If a company listed on a major stock exchange is worth £5 billion today, thousands of transactions may be contributing to that market value.

A privately owned building or company may have no comparable daily trading price.

The FCA has specifically examined this issue.

Its review of private-market valuation practices found that robust processes require independence, expertise, transparency and consistency, while also identifying areas where valuation governance could improve.

You can read the FCA’s review of private-market valuation practices.

Investors looking at asset-backed private credit should therefore ask:

• Who commissioned the valuation?
• Who prepared it?
• When?
• What assumptions were used?
• What type of value is being quoted?
• Has anything material changed since the valuation date?

What are covenants?

Private-credit documentation can include covenants — contractual conditions intended to place restrictions or obligations on the borrower.

Depending on the loan, these might cover:

• maximum leverage;
• minimum interest coverage;
• minimum cash levels;
• restrictions on additional borrowing;
• restrictions on disposing of assets;
• requirements to provide financial information;
• restrictions on dividends;
• maintenance of insurance; and
• other operational or financial conditions.

Covenants can provide an early-warning mechanism.

A borrower might breach a financial covenant before actually missing an interest payment.

That can potentially give lenders an opportunity to intervene, renegotiate terms or obtain additional protection.

But covenants only have value if they are properly drafted, monitored and enforceable.

What is covenant-lite lending?

Some loans contain fewer financial maintenance covenants than traditional lending arrangements.

These are often described as covenant-lite.

Fewer restrictions can give borrowers additional flexibility.

From an investor’s perspective, however, it can mean there are fewer early triggers allowing lenders to respond when the borrower’s financial position begins deteriorating.

This does not automatically make a covenant-lite loan unsuitable.

It does mean the investor needs to understand what protections have been given up in exchange for the proposed return.

What is mezzanine debt?

Mezzanine finance generally sits between senior debt and equity within the capital structure.

Because it ranks behind senior lending, the investor ordinarily accepts more risk.

That increased risk can be reflected in a higher proposed return.

Some mezzanine investments may also include equity participation or warrants, giving the lender potential additional upside if the underlying business or project performs strongly.

Again, the higher return is not free.

It compensates for a weaker position in the capital structure and potentially greater loss exposure if the borrower fails.

Property development finance

Real-estate development is one area where private credit plays an important role.

Developers require capital to:

• acquire sites;
• obtain planning;
• fund construction;
• complete refurbishment;
• bridge between project stages; and
• sometimes refinance previous lenders.

The repayment strategy frequently depends upon selling completed units or refinancing the finished development.

Investors therefore need to assess:

• planning risk;
• construction risk;
• cost overruns;
• contractor risk;
• development timescale;
• sales values;
• sales velocity;
• interest costs; and
• the viability of the proposed exit.

A development being secured on land does not remove those risks.

If further capital is required to finish the project, the value of an incomplete development can be very different from its projected value once completed.

Asset-backed lending beyond property

Security does not have to consist of real estate.

Private loans can potentially be backed by assets including:

• receivables;
• equipment;
• inventory;
• vehicles;
• financial assets;
• intellectual property;
• shares in subsidiaries; or
• other business assets.

The same questions apply.

What is the asset?

What is it worth?

How easily can it be sold?

Who has priority over it?

And what happens to its value if the underlying business has failed?

A specialist piece of machinery might have cost £5 million but be worth far less if it has to be sold quickly into a limited secondary market.

What is refinancing risk?

Many private borrowers do not accumulate enough cash to repay an entire loan from their bank account on maturity day.

Instead, the repayment strategy may involve refinancing.

The borrower might plan to replace a three-year private loan with:

• bank debt;
• a larger institutional facility;
• another private-credit loan;
• a bond issue; or
• proceeds from a corporate transaction.

That strategy depends upon financing remaining available.

If markets become more cautious or borrowing costs increase substantially, refinancing can become difficult.

The Bank of England’s July 2026 Financial Stability Report specifically highlights refinancing vulnerabilities among parts of risky credit and private-credit markets, noting that weaker investor demand and higher borrowing costs can make refinancing more challenging.

Private credit can be illiquid

Liquidity is another fundamental difference from many public-market investments.

A privately negotiated loan may have no active secondary market.

An investor cannot assume that someone else will buy the investment halfway through its term.

The capital may remain committed until:

• the borrower repays;
• the loan matures;
• an underlying asset is sold;
• a refinancing occurs; or
• another willing buyer can be found.

And if a borrower gets into difficulty, the investment may remain tied up substantially longer than the original contractual term.

Private credit should therefore generally be considered using capital that the investor is capable of leaving committed.

What happens when a borrower misses a payment?

Missing a payment does not necessarily mean immediate insolvency.

Private lenders and borrowers can sometimes restructure a loan.

This might involve:

• extending maturity;
• increasing the coupon;
• capitalising unpaid interest;
• requiring additional security;
• restricting business activity;
• selling assets;
• injecting new equity; or
• changing the repayment schedule.

Whether restructuring is better than enforcement depends on the circumstances.

Immediately forcing a fundamentally viable company into insolvency may sometimes destroy more value than allowing additional time.

Conversely, endlessly extending a failing borrower can simply postpone the recognition of losses.

This is where good creditor governance matters.

Who acts for investors if something goes wrong?

Some private debt structures appoint a security trustee or other representative to hold and potentially enforce security for the benefit of investors.

If one exists, investors should understand:

• who the trustee is;
• whether it is independent;
• what powers it has;
• what events allow enforcement;
• how investors instruct it;
• what voting thresholds apply;
• how its costs are paid; and
• what happens if investors disagree.

A security trustee cannot guarantee recovery.

Its function is to administer the legal rights created by the security documents.

How does private credit differ from private equity?

The fundamental difference is the investor’s position.

A private-credit investor is a creditor.

A private-equity investor owns part of the business.

Debt normally has contractual repayment and interest obligations.

Equity does not normally have a fixed maturity date or guaranteed dividend.

If a company performs extraordinarily well, equity holders may enjoy considerably greater upside.

If the company fails, creditors generally rank ahead of shareholders.

Neither is inherently better.

They represent different positions within the business and different risk-return profiles.

International investors should consider currency exposure

An investor based overseas may also be taking a foreign-exchange position, whether they intend to or not.

A sterling private-credit investment produces returns in pounds.

An investor in Hong Kong, Singapore, Dubai, Qatar, Oman, Bermuda, the Bahamas or elsewhere may ultimately measure their wealth in another currency.

If sterling weakens substantially during the investment term, some of the sterling return can disappear when converted home.

If sterling strengthens, the opposite can occur.

This becomes particularly relevant with investments running for several years.

Cross-border taxation also matters

International investors should understand the tax treatment of the income before investing.

The result can depend on:

• the investor’s tax residence;
• the type of payment received;
• whether the investment is held personally or through another structure;
• UK tax rules;
• domestic tax rules in the investor’s home country;
• withholding arrangements; and
• any applicable double-taxation agreement.

The UK has double-taxation agreements with many jurisdictions, but their terms differ.

HMRC’s current 2026 guidance for non-residents claiming treaty relief explains that qualifying investors may be able to obtain partial or full relief from UK tax on certain income where an applicable treaty exists.

International investors should obtain tax advice relevant to their own circumstances rather than relying on general examples.

Private-credit funds and individual private debt opportunities are not the same thing

This distinction is important.

An institutional private-credit fund may hold loans to dozens or hundreds of borrowers.

An investor in that fund therefore has diversified exposure across the underlying portfolio, although fund-level risks, fees, leverage, liquidity and valuation issues remain.

By contrast, somebody investing directly into a single company’s loan note has concentrated exposure to that particular issuer.

If the borrower fails, there is no portfolio of another 99 loans automatically offsetting the loss.

The term private credit can describe both areas of the market, but their risk characteristics are not identical.

How are private-credit assets valued?

Unlike publicly traded bonds, private loans may not trade every day.

That makes valuation more judgemental.

Private-credit managers can use factors including:

• comparable public debt yields;
• borrower credit quality;
• enterprise value;
• cash-flow forecasts;
• interest rates;
• market conditions;
• the value of security; and
• the likelihood of repayment.

The FCA’s work on private-market valuations found that private-debt firms commonly use income and market approaches and that greater judgement tends to be required where credit quality deteriorates.

This is another reason investors should not assume a private investment is stable merely because its reported valuation does not move every day.

Sometimes the absence of price movement simply reflects the absence of daily trading.

How much of a portfolio should be allocated to private credit?

There is no universal percentage.

It depends on the investor’s circumstances, objectives, other assets, liquidity requirements and willingness to accept loss.

But concentration deserves careful attention.

An investor holding five private loans may believe they are diversified.

If all five ultimately depend on UK residential development completing and selling successfully, the portfolio may be far more concentrated than it appears.

Look through each investment to the underlying economic risk.

Diversification by issuer name alone is not enough.

Questions to ask before making a private-credit investment

A useful starting checklist includes:

• Who is the legal borrower?
• What does the business do?
• Why does it require private finance?
• What will my money be used for?
• How will interest be paid?
• How will capital be repaid?
• What other debt exists?
• Where does my loan rank?
• What security exists?
• How has the security been valued?
• What covenants protect lenders?
• What happens if a covenant is breached?
• What constitutes an event of default?
• Who can enforce the security?
• Can the loan term be extended?
• Can I transfer or sell my investment?
• What regulatory protections apply?
• What currency exposure exists?
• What is the tax position?
• What is the realistic downside scenario?

Our broader guide to UK alternative investments for international investors considers many of these questions across the wider private-investment market.

Regulation and investor protection

Private credit spans both regulated and unregulated areas of financial markets.

An FCA-regulated fund investing in institutional private credit and an unregulated private-company loan note are not necessarily subject to the same protections or rules.

Investors therefore need to establish the position of the specific investment.

Do not assume:

• that a UK company is FCA regulated;
• that an investment is covered by the FSCS;
• that the Financial Ombudsman Service will be available;
• that security guarantees repayment; or
• that an attractive fixed coupon implies a low-risk investment.

Where an investment is unregulated, the investor may have significantly fewer statutory protections if something goes wrong.

Why private credit appeals to sophisticated investors

Despite the risks, private credit can have a legitimate role in portfolios.

Experienced investors may value:

• contractual income;
• defined investment terms;
• security where available;
• exposure to private businesses;
• potential diversification from traditional markets;
• access to specific sectors or assets; and
• the ability to analyse identifiable borrowers and projects.

The appeal is not that private credit eliminates risk.

It is that, in the right circumstances, investors may consider the proposed return appropriate for the credit, liquidity and structural risks they are accepting.

How FJP Investment approaches private debt

FJP Investment has operated in the alternative investment market since 2013 and considers opportunities across areas including private debt, loan notes, bonds, property and development finance, growth capital and other specialist structures.

We act as an introducer.

We do not manage client money and do not provide personalised investment, legal or tax advice.

Before deciding whether an opportunity is one we are prepared to introduce, we seek to understand areas including:

• the people behind the business;
• corporate structure;
• use of investor capital;
• financial information;
• existing borrowing;
• security where applicable;
• asset valuations;
• investment documentation; and
• the proposed mechanism for paying returns and repaying investors.

That process does not remove investment risk.

The purpose of due diligence is to understand risk, not pretend it does not exist.

You can read more about the areas we consider on our Alternative Investment Opportunities page.

Frequently asked questions about private credit

Is private credit the same as private debt?

The terms are often used interchangeably. Both broadly describe lending arranged privately rather than through publicly traded debt markets, although the precise terminology varies between sectors and investment structures.

Why do private-credit investments pay higher returns?

Private borrowers may pay more for flexibility, speed or access to financing unavailable through mainstream lenders. Investors may also be accepting greater credit, liquidity, structural or execution risk.

Is private credit secured?

It can be, but not all private credit is secured. Where security exists, investors should understand what assets are secured, their value, the security ranking and how enforcement would work.

Can you lose money in private credit?

Yes. Borrowers can default and investors can lose interest and some or all of their original capital.

Can private credit be sold before maturity?

Sometimes, but many private-credit investments have limited or no secondary market and should therefore be considered potentially illiquid.

Is private credit regulated by the FCA?

The private-credit market contains both regulated and unregulated activities and structures. Investors should check the regulatory status and protections applicable to the specific opportunity rather than relying on the general term “private credit”.

What is the biggest risk in private credit?

There is no single risk. Borrower default, leverage, refinancing, asset values, weak security, illiquidity and poor underwriting can all cause losses depending on the investment.

Can international investors invest in UK private credit?

Potentially, subject to the individual investment, investor eligibility, financial-promotion restrictions, tax considerations and any limitations applying in the investor’s jurisdiction.

Who can receive investment introductions from FJP Investment?

FJP Investment limits its investment introductions to qualifying high-net-worth and sophisticated investors who meet the applicable eligibility requirements.

Final thoughts

Private credit is ultimately about lending money.

That simplicity is useful because it keeps the investor focused on the questions that matter.

Who are you lending to?

Why do they need the money?

What are they going to do with it?

How will they pay the interest?

And most importantly, how will they give your original capital back?

Security, covenants and legal documentation can strengthen a lender’s position, but none of them turns a weak borrower into a strong one.

Jamie Johnson, CEO of FJP Investment, comments: “I like private debt because, when it’s structured properly, you can usually get down to some very simple questions. Here’s the money we’re lending. Here’s what they’re doing with it. Here’s what supports the loan. And here’s how we’re supposed to get paid back. The complicated paperwork matters, of course, but if the simple commercial story doesn’t make sense first, I’d struggle to get excited about the rest of it.”

For international investors, private credit can provide another way of gaining exposure to UK companies, property and projects without necessarily purchasing and managing the underlying asset personally.

But the return should always be considered alongside borrower quality, security, ranking, liquidity, currency exposure and the possibility of default.

FJP Investment works with qualifying high-net-worth and sophisticated investors in the UK and internationally. If you meet the relevant investor criteria and would like to receive information about private debt and other alternative investment opportunities currently being introduced by FJP Investment, you can register below.

Capital is at risk. Private credit and alternative investments may be unregulated, complex, illiquid and/or non-transferable and investors can lose some or all of their capital. Security does not guarantee repayment. Where an investment is unregulated, investors may not have access to the Financial Ombudsman Service or Financial Services Compensation Scheme. FJP Investment acts as an introducer and does not provide personalised investment, legal or tax advice. Independent professional advice should be obtained where appropriate.