---
title: "What Is Private Credit?"
term: "Private Credit"
description: "Private credit is non-bank lending to private companies—direct loans, venture debt, and structured credit—offering capital with contractual returns distinct from equity venture investing."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/private-credit
---

# What Is Private Credit?

> Private credit is non-bank lending to private companies—direct loans, venture debt, and structured credit—offering capital with contractual returns distinct from equity venture investing.

**Private credit** encompasses privately negotiated debt financing for companies not tapping public bond markets—including venture debt, asset-based loans, and direct lending from specialized funds.

### How it works

Lenders evaluate cash flow, collateral, or investor support rather than pure equity upside. Venture debt often couples term loans with [warrants](/glossary/equity-kicker) and ties to recent equity raises. Covenants may restrict additional debt, M&A, or cash burn thresholds. [Prepayment penalties](/glossary/prepayment-penalty) protect lender yield if companies refinance early after equity rounds.

Private credit funds raise LP capital targeting interest income with lower upside than VC. Startups blend equity and credit to reduce dilution while funding growth between rounds.

### Why it matters

- **Founders:** Debt complements equity when growth is predictable enough to service payments—misuse during product-market fit search creates distress.
- **Investors:** Credit exposure diversifies LP portfolios; GPs offering credit must avoid conflicts with equity portfolio companies' cap structures.

### Common mistake

Treating venture debt as "free money" because it avoids immediate dilution—repayment, covenants, and warrant dilution still carry real cost.

### Related ideas

See [venture debt](/glossary/leverage), [subscription line](/glossary/subscription-line), and [structured equity](/glossary/structured-equity).

## FAQ

### What is private credit in simple terms?

It is loans and debt-like financing to private businesses—not equity. Lenders earn interest and fees; founders repay or refinance, often with warrants attached in venture contexts.

### Why does private credit matter?

Startups use private credit to extend runway with less dilution than equity, but covenants and repayment risk differ from VC. LPs allocate to credit funds for diversification.


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Source: https://venturecapitaltracker.com/glossary/private-credit