Private credit: what it is and how payment and lending companies use it

Private credit is lending by non-bank investors on privately negotiated terms. It has become a major source of funding for fintech lenders, payment companies and other businesses that need flexible capital. This guide explains how it works, the terms that shape it and how onchain credit can widen the pool of lenders.

When a company borrows from a bank or issues bonds, it uses the most familiar parts of the credit market. Private credit covers lending that happens outside them: specialist funds, insurers and asset managers lend directly to companies and negotiate terms one deal at a time.

Why private credit has grown

Private credit has grown quickly since the 2008 financial crisis, as banks pulled back from some types of lending and investors looked for higher yields. The Federal Reserve's note Private Credit: Characteristics and Risks and the BIS article The global drivers of private credit describe the market's growth, its borrowers and its risks.

How fintech and payment companies use it

Two forms matter most for payment and lending businesses:

• Facilities for lending platforms: a fund lends to a fintech lender, often through a dedicated vehicle, so it can make loans to its own customers. The facility typically advances a share of eligible loans, with the platform holding a first-loss piece.
• Asset-based facilities: a fund lends against receivables, card settlements or inventory. See accounts receivable financing for the mechanics.

Terms that limit borrowers

Private credit is flexible to negotiate but can be rigid once signed. Common constraints include:

• Minimum utilization: the borrower keeps a minimum balance drawn and pays interest on it whether or not it needs the money.
• Concentration limits and caps: each fund limits its exposure, so a fast-growing borrower outgrows a facility and has to diligence and onboard a new lender.
• Eligibility criteria: only certain loans or receivables qualify, which can leave new products unfunded.
• Draw mechanics: notice periods and settlement windows tied to banking hours.

See revolving credit facilities for how these terms show up in practice.

Private credit onchain

Some private credit funds now lend in stablecoins, and some loans or pools are represented as tokens. For borrowers, onchain facilities can mean draws and repayments that settle near-instantly, 24/7, and the option to add lenders that already hold stablecoins alongside existing banks and funds. For lenders, onchain records show when funds moved and how repayments were applied.

Onchain infrastructure does not change the credit risk. Underwriting, legal structure, servicing and the rights of each lender still determine how a facility performs.

FAQ

What is private credit?

Private credit is lending by non-bank investors, such as specialist funds, insurers and asset managers, under terms negotiated directly with the borrower. The loans are not issued or traded in public markets.

How is private credit different from a bank loan?

A bank funds loans largely from deposits and is subject to bank capital rules. Private credit funds use capital from investors and can often offer more tailored structures, sometimes at a higher price.

Is tokenized private credit the same as private credit?

Tokenized private credit represents a private loan, or an interest in a pool of loans, as a token. The underlying credit risk, terms and legal rights are those of the loans. Where the token is a security, securities rules continue to apply.

Explore credit on Tempo

Stablecoins let credit move like a payment: funded, drawn and repaid at any hour, with each transfer tied to its loan. If you lend to or borrow from fintech and payment companies, get in touch to see how that works on Tempo.