Stay Afloat with Private Credit in Choppy Financial Markets

Are you afraid to surf the rising tides of the financial markets? You are not alone—many investors prefer to seek stable ground when markets are volatile.

Private credit can be that anchor. When carefully chosen, they offer steady returns and a way to stay afloat even when traditional investments are tossed by the waves.

By lending directly to businesses outside the public market, private credit helps you to avoid the ups and downs of the stock market. This results in greater stability and consistent returns, especially during uncertain times.

In this article, we’ll explore how private credit works, its unique benefits, and why it might be the solution for keeping your investments on track—even in choppy waters.

What are Private Credit Investments?

Private credit is a form of investment where non-bank lenders (like private firms or individuals like us) provide loans directly to businesses. This type of financing has become more common as banks have pulled back from lending to certain businesses due to regulations. 

#1 Target Companies

Now what are the types of companies that require private credit? They are typically SMEs that require financing outside of traditional bank loans. These companies often turn to private credit due to either their rapid growth, capital needs, or credit ratings that may fall below investment grade.

Note that when we talk about small and medium-sized companies in countries like Australia, they could be developers of up to 20 different projects. Hence, they are still sizable relative to those in Singapore. 

#2 Investment Structure

In private credit, loans are typically structured as senior debt, meaning they hold priority over other financial obligations in case of default. The bespoke nature of private credit allows lenders to set terms like fixed or floating-rate coupons (regular payments made to lenders) and protective covenants (conditions to protect lenders). These are tailored to manage risks and secure returns for investors.

#3 Value Creation and Risk Mitigation:

Although private credit doesn’t involve the direct management of companies (unlike private equity), the appointed credit managers play a key role in restructuring the company’s expertise and providing managerial oversight. By setting specific covenants and collateral, they add a layer of security, ensuring that the investment remains sound throughout the loan term.

#4 Source of Returns

The returns that you can get from private credit investments are typically generated through interest payments, often at a floating rate above the reference rate. This allows both the fund and investors to benefit in a rising interest rate environment. Additionally, the regular income stream from private credit can help smooth out returns, making it attractive for income-focused investors.

Private Credit vs Public Listed Companies

What is the difference between investing in private credit versus a public listed company through stocks and bonds? 

When you invest in publicly listed companies through stocks, you’re buying a piece of ownership in the company. Stocks are traded on open markets—their prices change constantly based on supply and demand, economic data, and news. This can lead to large swings in value, making stocks a higher-risk but potentially higher-return investment option.

In contrast, private credit isn’t publicly traded on stock exchanges. It involves lending money directly to private companies, usually through a specialised lender or platform. Thus, they are usually unaffected by public market volatility.

Another difference is in risk management and priority. Private credit often involves “senior debt,” which means these loans are repaid first if a company faces financial troubles. This seniority offers an extra layer of security compared to stocks, where investors can lose everything if the company goes bankrupt.

Income from private credit can also be more predictable. Unlike stocks, where returns depend on the company’s profitability and stock performance, private credit loans typically pay regular interest, often at a floating rate tied to current market rates. This provides a steady income stream, which can be especially appealing in uncertain markets.

Finally, access is usually more limited for private credit. Public stocks and bonds are available to nearly any investor, while private credit is usually offered through specialised funds or platforms that cater to accredited investors or those with specific investment experience.

Should You Consider Investing in Private Credit?

To determine if private credit is the right form of investment for you, ask yourself the following questions:

#1 What’s my risk tolerance?

Private credit can provide steady returns, but it comes with some risk, including the chance of borrower defaults. If you’re comfortable with moderate risk and value stability over high-risk, high-reward investments, private credit might be a good fit. 

#2 How long can I commit my funds?

Private credit investments usually have a fixed term. This commitment may range from short-term periods of 6 to 18 months to as long as several years. If you’re comfortable locking in your funds, private credit can deliver reliable income. However, if you need quick access to your funds in the next month or two, such investments may not be suitable.

#3 Do I need regular income?

Private credit is ideal for income-focused investors, as it often offers consistent interest payments—sometimes with floating rates that adjust with market conditions. If predictable income is a priority, this could work well for you.

#4 Is my portfolio diversified enough?

Adding private credit to your portfolio can help you to reduce your reliance on stocks and bonds, spreading risk and making your investments more resilient to market swings. If your portfolio needs more balance, private credit might be a helpful addition.

#5 How much liquidity do I need?

Private credit investments are usually less liquid than stocks or bonds, meaning you can’t easily access the funds until the loan term ends. If you’re comfortable with this, it could work; but if liquidity is a priority, a different option might suit you better.

#6 What’s the current economic climate?

Interest rates and economic conditions may impact private credit returns. In a rising interest rate environment, private credit’s steady payments can provide stability, but consider how economic changes might affect returns and borrower security.

#7 Do I have the resources for due diligence?

To invest in private credit, you often need to conduct an in-depth evaluation of the borrower’s financials and industry. If you have access to resources or financial advisors to help conduct this due diligence, you’ll be better prepared to assess opportunities confidently.

BigFundr: A Safer Way to Access Private Credit 

BigFundr combines the stability of private credit with the transparency of a regulated platform, making it easier and safer for the average investor to grow their wealth through private credit. 

Licensed and regulated by the Monetary Authority of Singapore (MAS), you can start investing with as little as S$1,000, making real estate debt investing accessible to everybody.

Each loan on the platform is secured by real estate collateral and backed by rigorous evaluations, ensuring that only well-vetted opportunities reach investors. This security is further reinforced with three layers of protection: 

1. BigFundr holds the First Legal Charge on the real estate;
2. We extract a personal guarantee from the borrower; and
3. We’re protected by a buy-back provision from our fund management companies. 

For investors seeking consistent returns, BigFundr’s structured loans provide fixed returns often exceeding 6% per annum. Through monthly interest payments, you can enjoy a steady income flow, allowing you to grow your wealth predictably. 

BigFundr also simplifies the investment process, offering a secure sign-up through Singpass and streamlined investment selection, so you can start earning in just a few steps.

With transparency, accessibility, and rigorous due diligence at its core, BigFundr is the ideal platform to experience the benefits of private credit.