Private Credit & Revenue-Based Financing

Private Credit Platforms

Yieldstreet, Percent, and similar platforms.

Investment Overview

Private credit platforms provide retail access to middle-market loans with 9-14% yields through fractional debt investments. Leading platforms: Percent ($2B+ funded, $500 minimums), Yieldstreet ($4B+ AUM, $10K minimums), Arc ($1B+ deployed, accredited-only). Loans typically senior secured with 1-3 year terms to borrowers unable to access traditional bank lending (small-cap companies, FinTechs, real estate developers). Investment thesis: Banks reduced middle-market lending post-2008 regulations, creating $500B+ financing gap filled by alternative lenders. Returns: 9-14% yields with floating rates (SOFR + 5-9%), providing interest rate hedge.

Market Context & Trends

Private credit exploded from $500B (2015) to $1.7T AUM (2024) as pension funds, endowments, and now retail investors seek yield. Percent pioneered sub-$10K minimums (2018), democratizing access. Historical default rates: 1-2% (pre-COVID), 6-8% (2020-2021 COVID spike), normalized 2-4% (2023-2024). Percent maintains <1% default rate through conservative underwriting. Key development: BDCs (Business Development Companies) offered similar exposure via public markets (ARCC, MAIN) with 9-10% dividend yields but suffered 30-50% drawdowns in 2020. Private credit platforms less liquid but avoid mark-to-market volatility.

How to Invest in Private Credit Platforms

Percent: $500 minimums per deal, 10-14% yields, 1-3 year terms, auto-invest diversification

Yieldstreet Private Credit: $10K minimums, 9-13% target yields, 2-4 year terms, senior secured

Arc Private Credit: Institutional borrowers (FinTechs, SaaS), $100K minimums, 8-11% yields

Ares Capital Corporation (ARCC): Largest BDC, $23B portfolio, 9-10% dividend, NYSE-listed (liquid)

VanEck BDC Income ETF (BIZD): 25 BDC holdings, 10-11% dividend, daily liquidity

Key Platforms & Access Points

Percent: $2B+ funded, <1% default rate, 1,000+ deals, institutional-quality underwriting

Yieldstreet: $4B+ AUM, multi-asset platform (credit, real estate, art), $10K minimums

Arc: FinTech/SaaS focus, revenue-based underwriting, $1B+ deployed, accredited investors only

Ares Capital (ARCC): $23B BDC, investment-grade BBB rating, 9-10% dividend, 1-2% annual defaults

Owl Rock Capital (ORCC): $17B BDC, middle-market loans, 8-9% dividend, Blue Owl affiliate

Key Investment Metrics

Default rate: <2% excellent, 2-5% acceptable, >5% poor underwriting

Loan-to-value (LTV): Senior secured typically 50-70%; lower = safer, higher recovery in default

Average loan size: $5M-$50M typical middle-market; smaller = higher default risk, larger = concentration

Interest coverage ratio: Borrower EBITDA / interest expense; >2x safe, <1.5x risky

Floating rate structure: SOFR + spread; rising rates increase yields (good), falling rates decrease

Risk Considerations

Understanding these risks is critical before investing in private credit platforms.

Default risk: 2-5% annual defaults typical; 2020 saw 8-12% spike; single default erases year of interest
Illiquidity: 1-3 year lockups; no secondary market; early exit impossible or heavily discounted
Platform risk: If Percent/Yieldstreet bankrupt, loan recovery process unclear despite SPV segregation
Economic sensitivity: Defaults spike 3-5x in recessions (2008: 10-15%, 2020: 8-12%)
Interest rate risk: Floating rates protect against rate rises but if Fed cuts, yields compress 200-300bps

Related Investment Opportunities in Private Credit & Revenue-Based Financing

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