Private credit refers to a loan made by an institutional investor or non-bank lender. In recent years small and mid-sized companies (SMBs) have increasingly turned to private credit for financing. The lenders of private credit funds are hedge funds, pension funds, business development companies (BDCs), insurance companies, family offices, sovereign wealth funds and high net worth individuals.

Private credit lenders offer faster, more efficient, and more flexible loan terms and will generally accept riskier loan customers than a bank. However, the interest rates from private lenders tend to be higher than interest rates from banks.

Any business can qualify for a private credit loan, but there are certain minimum requirements. Working Capital Loans, Term loans, Lines of Credit, and Equipment Financing require a minimum of one year in business, revenue of $20,000 a month and at least a 650 FICO score. Revenue-Based Financing (RBF) are most popular for short-term needs and require 4 months of business checking account statements, a minimum 650 FICO and a minimum of $20,000 a month revenue. Our minimum loan size is $35,000 but we can place business loans up to $10 million. For larger loan sizes, we have institutional lenders in our network that require minimum of $150,000 of monthly revenue and a 630 FICO score.

A Revenue-Based Financing (RBF), is underwritten based on a borrower's recurring or subscription revenue, rather than earnings, which can be useful for an early-stage company in a growth phase, SaaS businesses, or borrower companies that do not generate EBITDA. Unlike traditional financing options that rely on profitability metrics, revenue-based loans focus on how much revenue a company brings in on a regular monthly basis, typically regardless of profitability. At least $20,000 a month revenue, and 4 months of bank checking account records are required along with a minimum 550 FICO score. Payback terms are negotiated to fit with available cash flow. Funding can be closed in days with appropriate documentation. Revenue-Based Loans are not a structure that has been available in the syndicated loan market.

No, revenue-based financing (RBF) is not considered a "loan." Instead, it is a type of financing where a company receives capital in exchange for a percentage of its future revenue, usually until a predetermined repayment amount is met. Here are some distinctions: 1. Structure: Unlike traditional loans with fixed interest and repayment schedules, RBF repayments fluctuate with the company's revenue, so payments are higher during good months and lower during slower months. 2. Pricing: Pricing ranges from 1.15 -1.30 Factor Rates (not interest because it is not a loan) over the duration of the facility, typically up to 12 months. Attached to the funding are steep prepayment discounts through the first half of the term that allow borrowers to pay off early at a significantly lower cost of capital. 3. Collateral: RBF typically doesn’t require collateral like a loan might. The future revenue serves as the basis for repayment. And since the facility is not a loan, there is no collateral or covenants like traditional loans. Payments are secured against the future revenue that the funder is purchasing, and performance is guaranteed but not personally guaranteed. 4. Process: Private credit uses the latest financial technology to analyze a borrower’s cash flow profile, so the due diligence process is quick and efficient, allowing for funding in 2-3 business days. There are no restrictions on the use of funds, but companies should look at RBF’s as “rent equity”, where if whatever the funds are used for creates revenue and margin in excess of the cost of the financing, it makes sense to move forward with a recurring-revenue financing. Speed, simplicity and flexibility are what makes RBF an attractive alternative to traditional loans, especially for companies with good margins and variable revenue streams.

Using private credit lenders can offer several advantages: 1. Flexibility in Loan Terms and Structure: Private lenders tend to have more flexibility with loan terms compared to traditional banks. This allows for customized loan structures that can better meet the specific needs of borrowers. 2. Faster Processing and Approval: Private lenders can approve applications and disburse funds more quickly than traditional banks. This can be particularly beneficial for businesses that need quick access to capital. 3. Higher Approval Rates: Private lenders often have higher approval rates for borrowers with less-than-perfect credit scores. This makes it easier for businesses and individuals with lower credit scores to obtain financing. 4. Access to Capital: Private credit provides access to capital for businesses that may not qualify for traditional bank loans. This can be especially important for small and mid-sized companies that need financing for operations, acquisitions, or balance sheet improvements. Overall, private credit lenders can provide more flexible, faster, and accessible financing options for borrowers, while offering attractive returns for investors.

No, Hardstone is a private credit broker, not a direct lender. We have prior relationships with many of the leading private credit lenders and will use co-brokers to help us match our clients with lenders who are most familiar with their industry. We do not charge an upfront fee for our services and our engagement fee is paid at the closing of a financing.