Debt and alternative financing
How do I raise private credit for my business?
Short answer
Start by deciding which side of private credit you need. You either borrow from a non-bank lender, or you raise money from investors who then lend. Either way, the people writing the check care about your documents, your track record and the structure. I would get audited financials, a clear use of funds and third-party support in place first. Many sponsors talk to a securities attorney about the terms.
Private credit is money lent by someone other than a bank. When banks pull back, private lenders and investors fill the gap. Your first job is to be clear about which problem you have. Do you need a loan for your own business, or do you need to raise a pool of money that someone will lend out? The audience and the paperwork are different for each one.
Give investors what they want, not what you need
One guest on our podcast told a story I see often. Banks were shutting down lines of credit, so he needed debt. He put together a debt syndication and thought the packaging was great. He raised $25,000. His numbers made sense, but his investors were interested in equity, not debt.
He later raised notes from the same kind of investors, about a million dollars, to bridge a $20 million debt facility that was about to close. This time he framed it around helping the next generation of physicians. He knew his investors, so the offer fit them.
This clip walks through the failed debt raise and the bridge notes that worked the second time.
What institutional lenders ask to see
If you want larger pools of private credit, expect to be asked for proof. One lender on a panel we hosted started with $20,000 on small hard money deals, charging 16% and four points. His early money came from friends and family. When he started talking to institutions, they asked for an audit, a fund administrator and legal counsel. He had none of those yet.
With only $10 million under management, he got his first audit. He now has more than 10 years of audited financials and a track record to show. He also moved to top auditors, top law firms and a top fund administrator as he grew.
Here he tells how he moved from a small hard money lender to a platform near a billion dollars.
Summary and key takeaways from this video
A simple checklist comes out of that story:
- Audited financials, even if you start small
- A third-party administrator who checks your numbers
- Legal counsel with offering experience
- A written track record of what you have funded and repaid
Think about structure before you talk to anyone
Offering debt to investors raises questions about how the offer is structured and who you approach. I am not a lawyer, and many sponsors talk to a securities attorney before they send a deck.
Talk to the money, then narrow your offer
In a panel on advanced capital raising, one firm said it holds constant conversations with its investors. From those talks it settled on five to seven products it brings to market, and structured credit is one of them. Credit sells best when it is specific. A niche, a clear source of return and a manager who can explain it all help.
Communication matters too. One panelist's view was that a fund manager who cannot look an investor in the eye and explain what they do will often struggle to raise money. Practice your explanation until it is plain.
This session covers how one firm picks credit products and what investors want to hear.
Summary and key takeaways from this video
From my books and event talks
One habit I push on every raise is to budget about 0.1 percent of the amount you are raising for materials. Lenders and note investors want to verify what you tell them, so a clean process and transparent documents build credibility and conviction. If you spend that small amount on professional materials, you may raise faster with fewer meetings. You might even raise a little extra because the package looks credible and professional. That is cheap compared with the risks a lender is already worried about.
"You have operational risk, you have team or execution risk, your business model risk, your competitor risk. You've got risk all over the place that might not happen. So I think that's going to lead to the maximum credibility, maximum credit conviction, trust, something that they can verify, and just being transparent on that process."
"I just try to budget 0.1 percent of what you're raising capital for, and then you'll raise faster with fewer meetings, or just raise an extra $10,000 instead of raising ten million. You know, raise a little bit more, and hopefully you'll be able to do so because of the materials, be more credible and professional."
Facts and figures
- A podcast guest raised only $25,000 on a debt syndication because his investors wanted equity.
- A lender began with $20,000 on hard money loans priced at 16% and four points.
- That lender got his first audit at $10 million in assets under management and now has over 10 years of audited financials.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Top 3 Insights on Structuring Investments - PODCAST - Family Offices & Family Office Club, Growing Platforms, Structuring Deals & Raising Capital in Real Estate Credit, 10 Advanced Capital Raising Strategies That Took Raising $1 Billion + 10+ Years to Find Out. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around offering structure, investor outreach rules and offering documents. Do not use AI to write your own legal agreements.
Your next steps
- 1Decide if you are borrowing for your business or raising a fund that lends.
- 2Ask ten likely investors or lenders what they want before you build the offer.
- 3Get audited financials and a third-party administrator lined up.
- 4Write a short track record and a clear use of funds.
- 5Many sponsors review the structure and their outreach with a securities attorney.
More questions on this
Is private credit the same as a bank loan?
No. Private credit comes from non-bank lenders or investors, and the terms are set between you and them. Pricing and speed can differ a lot from a bank.
Do I need an audit to raise private credit?
Institutions often ask for one. The lender in our panel got his first audit at $10 million under management, so you can start earlier than you think.
What if my investors only want equity?
Then think about what they do want before you pitch debt. One guest raised only $25,000 for a debt syndication because his investors wanted equity.
Related questions
- What is venture debt and who qualifies for it?Venture debt is a loan made to a venture-backed company, usually alongside or after an equity round.
- How does a bridge loan work for a real estate deal?A bridge loan is short-term money that covers a gap in a real estate deal.
- What is mezzanine financing and when should I use it?Many sponsors look at mezzanine financing when senior debt does not cover the whole gap and they want to avoid selling more equity.
- How does asset-based lending work for growing companies?Asset-based lending is a loan secured by company assets such as receivables, inventory or equipment.
Work through it with the dilution calculator. See all debt and alternative financing resources.