In short
Private lending is lending money to a borrower out of private capital — somebody's own money, or money they are entitled to lend — rather than out of a bank's deposits or funds raised on a public market.
If you are the lender, you are a creditor. A named party owes you a specific amount under a written agreement, usually with something standing behind it. Your best outcome is the rate you agreed. Your worst is the money itself.
01The definition, in one sentence
Credit, funded privately. That is the whole category. A borrower needs money, a lender has it, and the two write down what is owed and when.
What makes it private is where the money comes from. Not the size of the loan, not the borrower, not the interest rate, and not how the arrangement is marketed.
| Who lends | Where the money comes from | What it is called |
|---|---|---|
| A bank | Deposits the public has placed with it | Bank lending |
| A listed bond market | Many investors buying a tradeable instrument | Public debt |
| A private lender | Their own capital, or capital they may lawfully lend | Private lending |
That difference is not a technicality. It is the reason a bank needs a licence and a private lender does not, and we come back to it on lesson four.
02You are a creditor, not an owner
This is the sentence worth rereading. When you lend, you do not buy a piece of anything. You acquire a claim.
A claim is a right to be paid. It has a face value, a rate, a payment date and a debtor with a name. It is not a share of a business, a unit in a fund or a stake in a property.
| An owner (shares, property) | A creditor (a loan) | |
|---|---|---|
| What you hold | A portion of the thing itself | A right to be paid money |
| Best outcome | No ceiling — it can multiply | The rate you agreed, and no more |
| Worst outcome | The value falls, possibly to nothing | You are not paid, and recover what you can |
| Where you rank | Behind everybody owed money | Ahead of the owners |
Read the middle row again. A loan is capped at its rate. That is the trade: you give up the chance of a large gain in exchange for a fixed, contractual claim that ranks ahead of the owners.
03Three things it is not
Each of these has a real legal meaning in South Africa, and each is a different regime. Calling a loan by one of these names does not make it one, and it does not escape being one either.
It is not a deposit. A deposit is money placed with an institution that may use it as it likes and must repay it. Taking deposits from the public and using that money to lend is the business the Banks Act reserves to registered institutions, and doing it without registration is an offence. Lending your own money is not that, which is exactly why no banking licence is needed. Lesson fifteen deals with how arrangements drift across that line.
It is not an investment product. A product is something structured, packaged and sold — often licensed, often supervised. A loan agreement between two parties is a contract. There is no product provider, no prospectus and nobody supervising the terms on your behalf.
It is not a scheme. A scheme pays earlier participants out of later participants' money. It has no borrower and no underlying loan, and it uses this vocabulary precisely because the vocabulary is respectable.
The test that separates the three is always the same: can somebody tell you who owes the money, under which document, and what happens if they do not pay? Lesson fifteen turns that into a checklist.
04What the word “private” does not tell you
There is a habit in this market of using private as though it meant selective, sophisticated or exclusive. It means none of those things.
- It does not mean unregulated. A private loan to an individual sits squarely inside the National Credit Act.
- It does not mean safe, and it does not mean risky. It describes the source of the money, not the quality of the lending.
- It does not mean small. Some of the largest credit in the country is privately funded.
- It does not mean secret. A well-run private loan generates more paperwork than a bank account, not less.
So private lending is a neutral description of a funding source. Whether any particular private loan is well put together is a separate question, and the next nineteen lessons are about how to tell.
05Why this is lesson one
Almost every expensive mistake in this market comes from carrying the wrong model into the room.
Somebody who thinks they are investing asks what the return is. Somebody who knows they are a creditor asks who the debtor is, what stands behind the claim, and what happens on the day it is not paid. Those are different conversations, and only one of them protects you.
Next we look at the position your money actually puts you in — which, in South Africa, is usually not the one people assume.