The past year and a half has been a fast and furious ride of increasing inflation coupled with repeated interest rate hikes as the Federal Reserve has attempted to reign in that inflation. The result has been a tumultuous global market that’s difficult to predict and creates a sense of instability for banks. On the flip side, that very instability has opened up incredible opportunities for private credit investing – the best we’ve seen in quite some time.
First, what is private credit?
Private credit, also referred to as private lending, refers to a class of assets encompassing loans, fixed-income or other structured investments designed to deliver high yields with lower overall risk as compared to equity investments. Private lenders extend loans to borrowers (such as for commercial real estate) much like a bank would, though typically at a higher interest rate than a bank might offer.
For example, a business needing an influx of cash to secure a commercial property could turn to a private lender for a more tailored lending solution than what a traditional bank might offer. Though the interest rate might be higher, the benefit of faster access to cash may outweigh the additional borrowing cost.
Why is it such a good time for credit investing?
Traditional banks and lending sources have responded to the current climate by tightening lending standards, making it increasingly harder for borrowers to secure funding. As banks write fewer loans, more and more borrowers are turning to alternative lending sources, such as private lenders, to gain access to much-needed funding.
Unfortunately, many qualified borrowers are being displaced by current market conditions, despite having well-established, high credit scores and low-leverage requests for capital. Since banks aren’t serving these low-risk borrowers, they are turning to private lenders and borrowing with terms that are more favorable for investors.
This creates a fantastic opportunity for savvy investors who have been able to maintain a cash reserve in this economic environment, as they’ll be well-positioned to fill a gap in the market. By providing borrowers with access to needed capital, investors will be rewarded with higher returns from a solid private credit investment.
Diversify income with debt investments
Private lenders provide borrowers with access to capital through loans. Borrowers are willing to pay a premium for access to flexible and customized capital. These loans, for the private credit investors who invest in them, have proven to be a high-yield source of income to supplement traditional fixed income strategies while also offering diversification and resiliency. Moreover, private credit has also out-performed public loans over the past decade.
The time to act is now
Because these periods of disruption and realignment typically create relatively short windows of opportunity, investors should act quickly. Based on our experience and the current indicators, the current opportunity will likely close sometime in 2024.
EqualSeat is your partner for investing in private commercial debt
Our fintech platform levels the playing field by providing accredited individual investors access to fractional investments in private credit, specifically commercial debt, while offering reliable, predictable, and transparent alternative investment opportunities outside the volatile stock market.
A simple dashboard gives users a snapshot of their account, investments and earnings. Users can view available investment opportunities at a high-level or dig deeper to see metrics, photos and property information.
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