What is private debt?
Private debt (also known as private credit) is business finance provided neither by a bank nor through public capital markets, but by specialist funds, insurers, family offices or institutional investors. The loan is arranged privately: terms, duration and security are negotiated directly between the business owner and the lender.
Why is private debt growing in the Netherlands?
Since capital requirements for banks were tightened, medium-sized businesses have found it harder to secure tailored bank finance. Private debt funds fill that gap. They often accommodate:
- More complex situations: acquisitions, carve-outs, restructurings
- Less tangible security: lending based on cash flow rather than solely on collateral
- Faster turnaround: weeks rather than months
- Higher leverage: a larger amount relative to EBITDA
The trade-off is a higher interest rate. Private debt is generally more expensive than bank lending.
The main types of private debt
| Type | Feature | Typically used for |
|---|---|---|
| Direct lending | Senior loan from a fund | Stable cash flow |
| Unitranche | Senior and junior debt in one loan | Acquisitions |
| Mezzanine | Subordinated, partly interest-bearing | Growth without dilution |
| Venture debt | Loan alongside venture capital | Scale-ups |
| Asset based lending | Secured loan | Inventory and machinery |
When is private debt suitable for your business?
Private debt is usually worth considering for funding requirements of around €1 million or more, with demonstrable and predictable cash flow. Examples include:
- Acquiring a competitor or supplier
- A management buy-out or buy-in
- International expansion or a major investment
- Refinancing multiple existing loans
What does it cost?
Interest rates generally range from around 7% to 14% per year, depending on risk, security and ranking. There is often an arrangement fee, an exit fee and the cost of due diligence and legal documentation on top. Allow for one-off costs amounting to a few per cent of the funding amount.
What should you look out for?
- Covenants: agreements on ratios such as leverage and interest cover. A breach may allow the lender to intervene.
- Repayment profile: bullet (everything at the end) or equal principal instalments — this determines the pressure on your cash flow.
- Security: rights of pledge over shares, inventory or receivables.
- Change of control: what happens if the business is sold?
Conclusion
Private debt has become a serious alternative to bank lending, particularly for growth, acquisitions and situations that do not fit a standard lending model. The cost is higher, but the flexibility and speed can be well worth it. Get sound advice on the structure and covenants before you sign.
Sources and scope
Examples and policy choices in this article are illustrative, not a current quotation, fixed standard or financial or legal advice. The editorial revision date relates to the summary, structure and source references; it is not a reference date for the underlying data.
| Primary source | What is it used for? |
|---|---|
| KVK (Dutch Chamber of Commerce) — checking business partners | Company identification and checks on business partners. |
Source links support the topic mentioned, but do not automatically substantiate all percentages, time frames or examples in this article. Check current terms and rules with the responsible authority.
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