What it is
A private credit fund is a type of private fund that pools money from eligible investors and uses it to make loans, rather than buying ownership stakes in companies. The borrowers are often small or mid-sized businesses, though loans can also be tied to real estate, equipment, or other assets.
Instead of trading on a public exchange, these loans are negotiated directly between the lender and the borrower. Terms such as repayment schedule, collateral, and interest structure are set in private agreements, and they vary widely from one fund to another.
Private credit sits within the broader alternative asset classes, alongside private equity, venture capital, real estate, infrastructure and hedge fund strategies. Private fund investments are speculative and illiquid and can lose all of their value, and borrowers may be unable to repay as agreed.
How it’s traditionally been approached
Historically, much business lending was done by banks. Over time, some lending has also been provided by non-bank lenders, including private funds, which is the part of the market people usually mean by private credit.
Private funds are commonly offered under exemptions from SEC registration, most often Regulation D. Under Rule 506(b), an issuer may not use general solicitation. Under Rule 506(c), general solicitation is allowed, but all purchasers must be accredited investors and the issuer must take reasonable steps to verify that status.
Accredited investor status is defined in SEC Rule 501(a). It includes individuals with income over $200,000 ($300,000 with a spouse or spousal equivalent) in each of the prior two years with the expectation of the same this year, or net worth over $1 million excluding the primary residence. Since the August 2020 amendments, it also includes holders in good standing of Series 7, 65 or 82 licenses, knowledgeable employees of certain private funds, entities and family offices with over $5 million in assets or investments, and registered investment advisers and exempt reporting advisers. Any offering is made only by the issuer through its own offering documents.
How the right fund manager may help
The right independent fund manager may help you understand how a particular credit strategy works: what kinds of loans are made, how they are secured, and how the manager approaches risk. A good conversation is often more about clarity than about any single product. The Hastings Fund is a directory, not an advisor, and does not recommend, endorse or rank investments or managers.
A first conversation is generally an introduction. A manager may explain the strategy, the fund's structure, the eligibility requirements, and the documents you would review. You can expect to be asked about your accredited investor status, and in a 506(c) setting, about verification.
Useful questions to ask include: How are loans sourced and underwritten? What happens if a borrower struggles to repay? How long is money typically committed, and what are the limits on withdrawals? What are the fees and how are they charged? How are reports and tax documents such as K-1s delivered? Past performance does not guarantee future results, so also ask how the manager thinks about downside scenarios.
The bigger picture
Financial decisions can affect how safe, rested and settled a person feels. Committing money to something that cannot easily be accessed may bring stress if it isn't aligned with your cash needs, time horizon and comfort with uncertainty. Taking time to understand a topic, rather than rushing, often supports greater peace of mind.
It can help to think about the whole picture: your goals, your family's needs, and your tolerance for risk, alongside your overall wellbeing. If financial worry is affecting your health, resources such as Providers.plus can help you find supportive care. No approach is right for everyone, and every path has its own tradeoffs.
Keep in mind
- Private fund investments are speculative and illiquid and can lose all of their value.
- Past performance does not guarantee future results, and nothing here predicts or promises any outcome.
- Tax treatment, including how K-1s are reported, depends on individual circumstances, so consult your own licensed tax, legal and investment advisers.
- This page is educational only. It is not an offer to sell or a solicitation of an offer to buy any security, and The Hastings Fund is not a broker-dealer, funding portal or investment adviser.
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Create an investor account →Frequently asked questions
What are private credit funds explained simply?
Private credit funds are pooled private funds that make loans to borrowers outside public bond markets and traditional bank lending. The terms are negotiated privately, so they can differ widely between funds. They are speculative and illiquid and can lose all of their value.
How is a private credit fund different from private equity?
A private credit fund generally makes loans, while a private equity fund generally buys ownership stakes in companies. Lenders and owners have different roles and different positions if a business struggles. Both are private fund strategies with significant risks.
Who can invest in private credit funds?
Many private funds are limited to accredited investors as defined in SEC Rule 501(a). Categories include certain income or net worth levels, holders of Series 7, 65 or 82 licenses, knowledgeable employees of the fund, and qualifying entities and family offices with over $5 million in assets or investments. Each fund sets its own eligibility requirements in its offering documents.
Are private credit funds liquid?
No, private credit funds are generally illiquid. Many limit when and how investors can withdraw, and some lock up money for extended periods. Always read a fund's offering documents carefully to understand its terms.
What is the difference between Rule 506(b) and 506(c)?
Rule 506(b) does not allow general solicitation, while Rule 506(c) does. Under 506(c), all purchasers must be accredited and the issuer must take reasonable steps to verify their status. Your own legal adviser can explain how this applies to you.
What questions should I ask a private credit fund manager?
Ask how loans are sourced, underwritten and secured, how the manager handles borrowers who fall behind, and what the fees and withdrawal limits are. Ask about reporting and tax documents such as K-1s, and about the risks, including the possibility of losing all of your money. Consult your own licensed advisers before making any decision.
Educational resource. The Hastings Fund shares general information and connects people with independent fund managers. It is not professional advice. Talk with a qualified professional about your own situation.