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
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Top Platforms & Investment Options
Percent
$500 per dealPrivate credit marketplace. Direct lending to middle-market companies. Yields 10-14%. Minimums $500-$5K. 1-3 year terms. Auto-invest for diversification. <1% default rate across 1,000+ deals.
Visit PlatformYieldstreet
$10,000 per offeringMulti-asset platform including private credit, real estate debt, art financing. Private credit: 9-13% yields. Minimum $10K. Vetted by investment committee. Some defaults (2020-2021) but overall positive.
Visit PlatformPipe (via Deckmatch)
Varies per dealRBF marketplace (acquired 2024). Companies sell future revenues at discount. Investors buy revenue streams. Target 12-18% IRR. SaaS and e-commerce focus. Minimum varies ($1K-$25K). Accredited investors.
Visit PlatformCapchase
Accredited investors; minimums varyRBF for SaaS companies. Advances against ARR. Investors access secondary market for revenue contracts. Yields 10-15%. Companies pay 6-12% of monthly revenue until 1.3-1.8x cap. Growing marketplace.
Visit PlatformClearco
Institutional/accredited onlyRBF for e-commerce and marketing spend. $5B+ deployed. Investors can participate via funds or secondary. Returns 12-20% target. Higher default risk than SaaS (e-commerce more volatile). Diversification critical.
Visit PlatformAres Capital Corporation (ARCC)
1 share (~$20-22)Largest BDC. $23B portfolio of middle-market loans. Dividend yield 9-10%. Investment grade (BBB). Liquid (NYSE). Alternative to direct private credit platforms. 1-2% annual default rate.
Visit PlatformVanEck BDC Income ETF (BIZD)
1 share (~$15-18)BDC ETF. 25 holdings including Ares Capital, Owl Rock, Blue Owl. Dividend yield 10-11%. Daily liquidity. Expense ratio 10.56%. Stock volatility: -30% to +40% annually.
Visit PlatformAccessing 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.