Private Credit for Individual Investors: What It Is, What It Pays, and What to Watch

What private credit is

Private credit refers to loans made by non-bank lenders — typically investment funds — directly to businesses. These are not publicly traded bonds. They are private debt instruments, often secured by company assets, that pay a fixed or floating interest rate to the lender.

When a mid-size company needs capital and does not want (or cannot get) a traditional bank loan, it borrows from a private credit fund. The fund pools money from investors, makes the loan, and distributes the interest payments as yield.

Why yields are elevated

Bank lending has tightened significantly since 2023. Regulatory pressure, higher capital requirements, and balance sheet constraints have made banks more selective about who they lend to. Private credit funds have stepped into the gap, and borrowers are willing to pay premium rates for the speed and flexibility that private lenders offer.

The result: private credit funds are currently generating net yields in the 8–12% range, well above what public bond markets offer. This spread exists because of illiquidity (your money is locked up), credit risk (borrowers may default), and the operational complexity of sourcing and managing private loans.

How individual investors can access it

Until recently, private credit was only available to institutional investors and accredited individuals through traditional limited partnership structures with $250,000+ minimums. That is changing.

Several platforms now offer private credit exposure starting at $500–$10,000: interval funds (semi-liquid, available to all investors), registered direct lending funds, and tokenized credit vehicles that represent fractional interests in loan portfolios.

The tradeoff for lower minimums is less control over which specific loans your money funds, and sometimes higher fee layers.

What to watch for

Liquidity. Most private credit investments have lock-up periods. Interval funds offer quarterly or monthly redemption windows, but you cannot sell on demand. Do not allocate money you may need within 12 months.

Credit quality. Not all private credit is the same. Senior secured loans (first lien) are safer than mezzanine or subordinated debt. Ask what percentage of the fund is senior secured and what the historical default rate is.

Fee structure. Many private credit funds charge a management fee (1–2%) plus a performance fee (10–20% of returns above a hurdle rate). These fees directly reduce your net yield. A fund advertising 12% gross may deliver 8–9% net after fees.

Track record. How did the fund perform during the 2022–2023 rate shock? What is the cumulative default rate? How many loans has the manager originated? New funds with short track records carry more uncertainty.

How it fits in a portfolio

Private credit is not a replacement for equities or traditional bonds. It is a yield-enhancement allocation that sits between investment-grade bonds (lower yield, higher liquidity) and equities (higher return potential, more volatility).

A common allocation for someone already invested in stocks and bonds is 5–15% of total portfolio in private credit. The key constraint is liquidity: only allocate money you will not need for 1–3 years minimum.

The bottom line

Private credit offers real yield in an environment where traditional savings and bonds pay less. But it comes with real tradeoffs: illiquidity, credit risk, and fee complexity. The right approach is to start small, choose senior secured strategies with established managers, and size the allocation based on your actual liquidity needs.

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