Understand

Private-lending models

Private lending is not one thing. There is really only one question — what do I actually hold? — and five answers to it. The detail behind each is here when you need it, and not before.

Maintained by the Association’s editorsLast updated 18 September 2026

Read this and you can stop

There is one question, and it is what do I actually hold? Five answers cover the whole market:

A loan agreement with the borrower. They owe you directly. If they stop paying, you enforce. Direct.
A loan agreement, but somebody else runs it. You are still the creditor; an administrator finds the borrower, papers the loan and collects. Administered.
A share of a pot. You own an interest in a fund or a note, not a loan. The vehicle is the lender, and the vehicle owes you. Pooled.
Loans you picked on a website. A platform matches you to borrowers or to slices of loans, and usually collects. Platform.
Somebody managing it for you under a mandate. Usually for larger amounts. Institutional.

That is the part that matters. Everything else — the rate, the security, the term — follows from it, and the rest of this page is detail you can come back for when you need it.

01 — Why the distinction mattersWhat you hold is the first question

Two arrangements can both be called private lending, pay a similar rate, and be entirely different instruments. Lend directly against a property and your counterparty is the borrower; if they stop paying, you enforce the bond. Buy a note issued against a pool of loans and your counterparty is the issuer; the borrowers may be performing perfectly and you can still be exposed if the issuer fails. Commit to a private-debt fund and you own neither — you own a fund interest, and the fund is the creditor.

None of those is better than the others. They are different risks, with different things to check, and a reader who cannot tell which one they are being offered cannot assess it.

02 — The five familiesThe detail, when you want it

Each family below opens to show the specific arrangements that belong to it. You do not need to read them all — open the one you have been offered. If you do not yet know which one that is, that is itself the most useful question to ask whoever is offering it.

DirectThe lender contracts with the borrower. No intermediary holds the loan.6 models

Direct bilateral lending

One lender lends to one borrower under an agreement negotiated between them, often secured over property or another asset.

What the lender holds: A loan agreement, and whatever security was registered for it.
Counterparty: The borrower.
Typical roles involved: Attorney · Security trustee · Valuer

What tends to go wrong

Concentration — the whole exposure sits with one borrower.
Documentation drafted by one side, or by neither.
No servicing capability if the borrower stops paying.

SME and corporate lending

Term loans and revolving facilities to operating businesses, often with covenants and personal or cross-company security.

What the lender holds: A facility agreement, security package and covenant set.
Counterparty: The operating company, and usually its principals under suretyship.
Typical roles involved: Credit analyst · Attorney · Accountant · Security trustee

What tends to go wrong

Covenant monitoring, which needs someone competent to do it.
Trading deterioration ahead of any missed payment.
Security that is hard to realise in practice.

Property and development finance

Lending against property, or against a development programme drawn down in stages as work completes.

What the lender holds: A mortgage bond, and in development finance a drawdown schedule tied to progress.
Counterparty: The property owner or developer.
Typical roles involved: Valuer · Quantity surveyor · Attorney · Security trustee

What tends to go wrong

Cost overrun and programme delay on development.
Valuation at the wrong point in a cycle.
Exit depending on a sale or refinance that may not arrive.

Asset-backed and equipment finance

Lending secured on identifiable movable assets — plant, vehicles, equipment — often with title retained.

What the lender holds: A finance agreement plus title or a notarial bond over the asset.
Counterparty: The asset user.
Typical roles involved: Valuer · Attorney · Recovery specialist

What tends to go wrong

Asset depreciation outrunning amortisation.
Recovery and resale of specialised equipment.
Perfection of security over movables.

Bridging and transactional finance

Short-dated lending against a known future event — a transfer, a payout, a refinance.

What the lender holds: A short-term agreement with a defined repayment event, usually with cession.
Counterparty: The borrower, with repayment tied to the event.
Typical roles involved: Attorney · Originator

What tends to go wrong

The event slipping or failing entirely.
Costs compounding quickly on short-dated money.
Cession that is not properly perfected.

Community-scheme finance

Lending to sectional-title bodies corporate and homeowners' associations for maintenance, arrears or capital projects.

What the lender holds: A loan to the scheme, repaid from levies.
Counterparty: The body corporate or association.
Typical roles involved: Managing agent · Attorney · Accountant

What tends to go wrong

Levy collection and owner arrears.
Trustee authority and whether the loan was properly resolved.
Community Schemes Ombud jurisdiction over disputes.

Administered or originatedA third party originates, documents, services or administers the loan, but the lender is still the creditor.2 models

Administered and originated lending

An originator finds and documents the loan and an administrator services it, but the lender remains the creditor of record.

What the lender holds: A loan agreement in the lender's own name, plus a servicing arrangement.
Counterparty: The borrower, with the administrator standing between them operationally.
Typical roles involved: Originator · Administrator · Servicer · Credit analyst

What tends to go wrong

Administrator failure — who services the loan if the administrator stops.
Origination incentives, where the originator is paid on volume.
Whether the lender can see the underlying borrower at all.

Invoice and working-capital finance

Advancing against receivables or funding a trading cycle, repaid as the underlying invoices settle.

What the lender holds: A discounting or factoring agreement, and rights against the receivables.
Counterparty: The trading business, with repayment depending on its own debtors.
Typical roles involved: Originator · Credit analyst · Servicer

What tends to go wrong

Debtor concentration and dilution.
Fraudulent or re-financed invoices.
Whether the facility is disclosed to the debtor.

PooledCapital is combined with other lenders' capital and deployed across many loans by a manager.3 models

Private-debt and private-credit funds

A manager raises capital from many lenders and deploys it across a portfolio of loans under a stated mandate.

What the lender holds: An interest in the fund, not a loan. The fund is the creditor.
Counterparty: The fund and its manager.
Typical roles involved: Fund manager · Credit analyst · Administrator · Auditor

What tends to go wrong

Manager selection and mandate drift.
Liquidity — capital is usually locked for the fund's life.
Fee layering between the fund, the manager and any feeder.
Valuation of loans that do not trade.

Notes and loan participations

The lender buys a note issued against a loan or pool, or a participation in a loan originated by somebody else.

What the lender holds: A note or participation interest — a claim against the issuer, not the borrower.
Counterparty: The issuer or the originating lender.
Typical roles involved: Issuer · Security trustee · Administrator

What tends to go wrong

Issuer credit risk sits on top of borrower credit risk.
What happens to the note if the issuer fails, which is a separate question from borrower default.
Transferability — whether the note can be sold before maturity.

Cross-border and offshore private debt

Private-debt exposure taken outside South Africa, in foreign currency, through offshore issuers or funds.

What the lender holds: An offshore note, fund interest or facility, governed by foreign law.
Counterparty: The offshore issuer, fund or borrower.
Typical roles involved: Issuer · Fund manager · Tax professional · Attorney

What tends to go wrong

Currency, and whether the return is real once converted.
Exchange control and tax treatment for a South African lender.
Recourse and enforcement under an unfamiliar legal system.
The issuer's regulatory position in its own jurisdiction.

Platform or marketplaceA technology platform matches lenders to borrowers or to loan participations, and usually handles servicing.1 model

Marketplace and platform lending

A platform lists borrowers or loan parts and lenders choose their exposure, with servicing handled centrally.

What the lender holds: Loans or loan parts, held directly or through a nominee structure.
Counterparty: The borrower, with the platform as intermediary and servicer.
Typical roles involved: Platform operator · Servicer · Credit analyst

What tends to go wrong

Platform failure and what happens to servicing and to client money.
Whether loans are held in the lender's name or by a nominee.
Self-selection — lenders choosing loans without credit skill.

InstitutionalMandated private-debt exposure taken by funds, insurers, pension funds and family offices.3 models

Institutional private-debt mandates

Pension funds, insurers and family offices take private-debt exposure through segregated mandates or fund commitments.

What the lender holds: A mandate or fund commitment governed by an investment management agreement.
Counterparty: The manager, under a negotiated mandate.
Typical roles involved: Fund manager · Consultant · Auditor · Compliance professional

What tends to go wrong

Mandate breach and monitoring.
Regulatory treatment of the allocating institution.
Illiquidity against the institution's own liabilities.

Infrastructure and development credit

Longer-dated lending to infrastructure, energy and development projects, often alongside development finance institutions.

What the lender holds: Project facility documents, frequently with an intercreditor agreement.
Counterparty: The project company.
Typical roles involved: Fund manager · Attorney · Security trustee · Credit analyst

What tends to go wrong

Construction and completion risk.
Offtake and counterparty concentration.
Intercreditor ranking and who controls enforcement.

Special-situations and distressed lending

Lending into stressed or restructuring situations, including rescue funding and secondary purchases of existing debt.

What the lender holds: Restructured facilities, rescue finance, or purchased debt at a discount.
Counterparty: The distressed borrower, or the seller of existing debt.
Typical roles involved: Recovery specialist · Attorney · Credit analyst

What tends to go wrong

Business-rescue ranking and the outcome of a plan.
Legal complexity and contested security.
Outcomes that depend on recovery rather than payment.

03 — Adjacent marketsMarkets that sit next to this one

These are regularly confused with private lending. They are named here so a reader can place themselves, not to draw a boundary for its own sake.

Consumer microlending and emergency credit: Small, short-term unsecured lending to consumers. A distinct market with its own regulation and its own economics. This site is not written for it.
Bank and commercial-bank credit: Deposit-funded lending by registered banks. Private lending is credit extended outside that system and funded by private capital.
Listed debt and bond markets: Publicly issued, traded and rated instruments. Private debt is negotiated and generally not traded.
Equity and venture investment: Owning part of a business rather than being owed money by it. A different risk and return profile entirely.

04 — Where to go nextChoosing between them

How the models work sets out the roles in each structure and which of them can be combined in one entity. Becoming a private lender covers the routes in, and the legal treatment that follows from each. Risk and due diligence covers what to check before committing capital to any of them.

15 models are described here. The list grows as the market does; it is not a statement about which are most common, because nobody has measured that.

Step 2 of 6 · Start here

Who does what, and where does my money go?

Next: How the money moves →

Follow the capital from you to the borrower and back, and name who is responsible at each step. About 10 minutes.

← Back to 1. What private lending is