Private Credit for Sponsors: How the Deals Work
Private credit for sponsors is non-bank debt used to finance companies that a private equity firm owns or controls. It covers acquisitions, growth spending, and recapitalizations. The lender is a private fund or non-bank lender, not a bank, and the sponsor's equity sits beneath that debt.
Thrive Funding arranges private credit for middle-market companies, including deals of $1M to $100M or more. Thrive is not the lender. Lending groups make every credit decision.
What a sponsor is in private credit
A sponsor is the private equity firm that owns or controls the borrowing company. In sponsored financing, a non-bank lender provides credit to a business that is wholly or majority owned by a private equity firm, according to Brookfield's guide to sponsored and non-sponsored financing.
The sponsor matters to lenders for two reasons. It usually has an equity stake that sits below the debt, which is a cushion if the business struggles. It also tends to bring a known operator and a track record of managing portfolio companies.
Sponsored and non-sponsored private credit
Not every private credit loan involves a sponsor. The table below shows the main differences.
| Sponsor-backed | Non-sponsored | |
|---|---|---|
| Owner | Private equity firm owns or controls the company | Founder, family, or other owners |
| Typical use | Acquisitions, add-ons, recapitalizations, growth | Working capital, growth, refinancing |
| Equity cushion | Sponsor equity sits below the debt | Depends on the owners' equity |
| Lender's main check | Sponsor's track record and support, plus company cash flow | Company cash flow and collateral |
How the market has grown
Private credit has grown quickly. According to the Federal Reserve, it is one of the fastest-growing segments of nonbank financial intermediaries over the past 15 years or so. The same Fed note puts the U.S. asset class at about $1.34 trillion and the global total at nearly $2 trillion by 2024 Q2, roughly five times its 2009 size.
That growth is one reason policymakers now watch how banks lend to private credit funds. For a borrower, it means more lenders are competing for sponsor-backed deals.
How a deal moves through Thrive
Thrive is an arranger. Here is the process for a borrower.
- The borrower applies at thrivefunding.com/apply. The application comes in as a lead.
- Thrive matches the request against each lending group's criteria: deal size, revenue and EBITDA minimums, industries, states, loan types, and pricing.
- Lending groups that match get an anonymous deal summary and reply yes or no on fit.
- Once the borrower agrees, up to three groups that said yes get introductions, best fit first. Each introduction is a separate email thread, so the lenders do not see each other.
- Lenders issue term sheets on their own letterhead. Thrive sends the borrower a side-by-side summary, and the borrower chooses one.
- The success fee is owed by the lending partner when the loan closes.
Every borrower email says that Thrive is paid by its lending partners. Estimates Thrive shares are called indicative terms. They are not a term sheet and not an offer. Only a lender can make a credit offer.
Requests under $1M get an automatic decline, because the lending groups in the network do not write loans that small.
What to prepare before you apply
A sponsor-backed request is easier to match when the file is complete. Have these ready:
- The size of the loan you need and what it will fund, such as an acquisition, a recapitalization, or growth capital.
- The company's revenue and EBITDA, and how they have trended.
- The industry and the states where the company operates.
- The sponsor's name and its role in the company.
- The loan type you are considering.
Lenders screen on size and fit first. A clear summary saves time for everyone.
Risks to weigh
Private credit loans usually have floating rates and are not traded like bonds, so the borrower should check the pricing, the fees, and the covenants in each term sheet. Compare the indicative terms with the term sheets the lenders issue, and read the fee and closing terms before choosing.
For a borrower, the main risk is the same as with any debt: the company must service the loan from its cash flow. A sponsor's support can help, but it does not replace a sound business plan.
Contact Thrive
If you want to know whether your deal fits the lending groups in the network, start with the application. You can also reach the team at contact@thrivefunding.com or +1 (305) 912-2096.
FAQ
What are sponsors in private credit?
Sponsors are the private equity firms that own or control the borrowing company. Their equity sits below the loan, and lenders look at their track record when they size and price a deal.
What is a private credit lender?
A private credit lender is a non-bank fund or lender that makes loans directly to companies rather than through a bank or public bond market. Thrive does not lend. It introduces borrowers to lending groups, and each lender makes its own credit decision.
Can I borrow money from private lenders?
Yes, if your company is a middle-market business and the loan fits a lender's criteria. Requests of $1M or more can be submitted at thrivefunding.com/apply. Requests under $1M are declined automatically, and lenders decide on each deal separately.
How risky are private credit funds?
Risk depends on the fund, the borrower, and the terms. Regulators are watching private credit closely because it has grown so fast, as the Federal Reserve note describes. Borrowers should read each term sheet in full before they choose a lender.
How much money do I need to be a private lender?
This page covers borrowers. Lenders who want to join the network should review the lender page at thrivefunding.com/origination, which describes how lending groups take part.