Private Credit & Revenue-Based Financing
The rise of alternative lending and fintech credit for SMBs and startups.
Overview
Private credit has exploded from $500B (2015) to $1.7T+ AUM (2024), offering 8-14% yields on loans to middle-market companies unable to access public debt markets. Revenue-Based Financing (RBF) provides startups and SMBs with capital in exchange for 2-15% of future revenues until repayment cap (typically 1.3-2.5x). Investment access via platforms like Percent, Yieldstreet (private credit) and Pipe, Capchase (RBF). Returns: Direct lending 9-12% IRR, RBF 12-18% IRR. Key advantages: Floating rate structures, senior secured priority, and illiquidity premiums of 300-500bps over public credit. RBF appeals to SaaS and e-commerce companies avoiding equity dilution.
Key Benefits
- Higher yields: Private credit 9-14% vs. 5-7% investment-grade bonds; RBF 12-18% IRR
- Floating rate protection: Most loans SOFR + spread; rates rise with Fed hikes
- Senior secured priority: First claim on assets; recovery rates 60-80% vs. 20-40% unsecured
- Revenue alignment: RBF payments flex with company performance; lower default risk than fixed debt
- Low correlation: 0.3-0.5 correlation with public equities; portfolio diversifier
- Covenant protections: Maintenance covenants allow early intervention before defaults
- Startup/SMB access: RBF provides growth capital without equity dilution for founders
Platform Reviews
In-depth analysis using our three-pillar evaluation framework
Fundrise
Vertically-integrated private markets platform providing non-accredited investors access to diversified real estate portfolios, venture capital funds targeting AI/ML growth companies, and private credit strategies through low-cost eREITs and interval funds with quarterly liquidity windows and minimums starting at $10.
Willow Wealth
Multi-asset alternative investments platform (formerly Yieldstreet) offering direct deal selection, managed portfolios, and institutional fund access across private credit, real estate, private equity, legal finance, and art. CNBC reporting documented investor losses exceeding $200M through late 2025; platform rebranded and removed historical performance data from public website during same period.
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Accessing Private Credit & RBF
Start with Diversified Private Credit Platforms
Percent and Yieldstreet offer fractional private credit. Minimums $500-$10K per deal. Yields 10-14%. Loans 1-3 years. Diversify across 10+ deals to mitigate defaults. Check platform default rates (<2% preferred).
Explore RBF Platforms
Pipe (acquired by Deckmatch) and Capchase secondary markets offer RBF contracts. Buyers purchase revenue streams at 10-25% discounts. Target 12-18% IRR. Higher risk than senior secured debt but upside if companies grow faster than projected.
Understand Senior vs. Subordinated Debt
Senior secured loans (first lien) offer 9-11% yields with 60-80% recovery. Mezzanine/subordinated 12-15% but recovers 20-40%. Beginners: Focus on senior secured.
Assess Borrower Credit Quality
Target: EBITDA $10M-$100M, leverage <4x, positive cash flow, 5+ years operating history. For RBF: $500K+ ARR, <50% revenue concentration, SaaS or e-commerce. Avoid turnarounds and >5x leverage.
Private Credit & RBF Risks
Important considerations before investing in private credit & revenue-based financing
- Default risk: Middle-market borrowers 2-5% annual defaults; recessions trigger 10-15%
- Illiquidity: 1-3 year lockups; no secondary market; early exit requires discounts
- RBF revenue risk: If company revenues decline, payments extend; elongates payback period
- Credit cycle correlation: Private credit correlates with economic cycle despite low public market correlation
- Platform risk: If Percent, Yieldstreet bankrupt, loan ownership unclear despite SPV structures
- Covenant lite risk: Some loans lack maintenance covenants; cannot intervene until default
- Interest rate cuts: 2024 rate cuts reduced yields 100-200bps despite floating rates
- Concentration: Individual deals 5-10% of portfolio; single default erases year of interest
Due Diligence Checklist
- Check platform track record: Percent <1% defaults preferred; Yieldstreet 3-5%
- Verify loan seniority: First lien senior secured with collateral coverage (LTV <70%)
- Assess borrower financials: EBITDA, leverage ratio, cash flow, industry outlook
- For RBF: Analyze revenue quality (recurring vs. one-time), customer concentration, churn rates
- Review credit memo: Platform should provide detailed borrower analysis and exit strategy
- Diversify across 10-15 loans: Single loan = binary; portfolio averages defaults
- Understand fees: Platform fees 0.5-2% annually; origination 1-3%; net yield reduction 1-3%
- Compare to public alternatives: Are you getting 300-500bps illiquidity premium vs. BDC ETFs?
Real-World Examples
Percent portfolio (2019-2024): $100K across 20 deals. 1.5% default rate, 50% recovery. Net return 9.8% annually after defaults.
BIZD ETF (2011-2024): $10K grew to $22K with dividends (6.2% CAGR). Underperformed S&P 500 (11%) but lower volatility.
Ares Capital (ARCC): Continuous dividends since 2004. $10K (2004) now $38K with dividends (10.5% CAGR). Survived 2008.
Pipe RBF example: $50K investment in SaaS company revenue stream at 20% discount. Company hit projections; earned 15% IRR over 3 years.
Lending cycle: 2015-2019 (1-2% defaults), 2020-2021 (6-8% COVID spike), 2022-2024 (normalized 3-4%). Illustrates economic sensitivity.
Advanced Guides
Explore Subcategories
Private Credit Platforms
Yieldstreet, Percent, and similar platforms.
Revenue-Based Financing (RBF)
Pipe, Capchase, Clearco and investing in SMB revenue streams.
Invoice & Receivable Investing
Investing in receivables or invoice-factoring.
Alternative Yield Vehicles
Debt crowdfunding, peer lending.