Debunking 5 common myths about private credit in Australia

When planning a refinancing or funding strategy, having the right capital partner can be just as important as the financing terms themselves.

The Findex Debt Advisory team advises a wide range of clients. When discussing potential lenders to approach, we have found that clients are often unsure about the Private Credit sector. This arises from some common misconceptions about how this sector operates and the value it can bring. There are now over 300 private debt funds operating in Australia, lending over A$120 billion in 2024 to public and private companies, both large and small. 

Below are five common myths about private credit and our views and experiences as Debt Advisors. 

1. Private credit is all the same 

Private credit is not one-size-fits-all. Many market commentators treat the sector as one, but this is simply not true. Private credit funds differ by investment mandate, sector focus, risk appetite and structuring approach. Private credit funds may specialise in large, mid-market or growth companies, real estate, infrastructure, asset-backed or cashflow lending. 

2. Private credit is expensive 

Pricing in the private credit sector covers the entire risk spectrum – from conservative, bank-type risk profiles to quasi-equity risk, and everything in between. Using the interest rate as the sole determinant of whether something is expensive or not is taking a myopic view.  

Private credit funds can offer a higher degree of flexibility in structuring financing, including customising covenants and amortisation schedules, aligning them with a business' specific needs and cash flow dynamics. In many cases, the strategic value of this flexibility plays a crucial role in helping businesses achieve their objectives, as the funding tends to be tailored and purpose driven.

3. Private credit funds are a ‘lender of last resort’  

This perception dates back more than 30 years when the sector was in its infancy in Australia, where many lenders focused on restructuring. The sector has continued to mature and evolve and it is simply not the case now. Credit funds are increasingly used by performing companies, both listed and unlisted seeking flexible capital for strategic purpose. Some private credit funds also participate alongside banks in syndicated loan facilities.  

The sweet spot for many funds now is to provide bespoke funding solutions to well-run businesses pursuing growth strategies through geographic expansion, acquisitions or organic growth initiatives. As advisors, we view private credit borrowing as a strategic tool enabling firms to meet their objectives. 

4. "They want to take over my business"

Private credit funds operate as capital partners and are engaged for the borrower’s purpose. They offer tailored solutions for the unique needs and circumstances of each business. In some cases, their support can cover the entire capital stack, from senior debt to equity-like instruments. This helps align their interests with those of the borrower. Most private credit funds are lean, nimble operations and therefore have limited capacity or intention to run businesses.  

Having said that, given each fund will have a diversified portfolio of companies, in some cases private credit lenders are able to offer strategic support. This could include introducing partnerships or providing business recommendations, to help companies achieve their objectives.  

5. Private credit funds are unregulated and lack oversight 

From the borrower’s perspective, private credit funds are subject to financial licensing and compliance obligations under the oversight of ASIC, APRA and AFCA. Most private credit funds have specific investment mandate guidelines that need to be adhered to, along with robust corporate governance and risk frameworks.  With many funds now attracting capital from institutional investors and superannuation funds, the bar has been raised even further.   

The private credit market continues to mature and evolve in Australia, and globally. The market is diverse and caters for a wide variety of borrowers, whether they be listed, unlisted, large or small. Private credit therefore cannot be viewed as a homogeneous group of lenders. Debunking the myths surrounding private credit allows debt advisors, such as Findex, to hold a broader strategic discussion with borrowers around potential funding solutions. This can help determine the best source of funding for them to achieve their strategic goals. 

If you would like to discuss different funding solutions, please contact us to speak with one of our corporate finance experts. 

The views and opinions expressed in this article are those of the author and do not necessarily reflect the thought or position of Findex (Aust) Pty Ltd ABN 84 006 466 351 (Findex).