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Private credit can offer family offices regular income, diversification and investment opportunities which align with their clients’ values. Capturing that opportunity requires disciplined origination, careful due diligence and robust documentation.
Introduction
Private credit has developed from a specialist corner of the finance market into an established source of capital for businesses. It supports acquisitions, refinancing, real estate and other opportunities that do not fit within an institutional lender’s standard credit parameters. For borrowers, its attractiveness primarily lies in its speed and flexibility. For lenders, it can offer regular income, portfolio diversification and the opportunity to invest in accordance with their values.
Family offices are naturally placed to participate as lenders in this market. They commonly invest with a long-term perspective, can potentially approve loans much faster than a typical institutional lender due to their smaller investment committees and are not burdened by regulatory capital requirements or internal credit policies.
What is private credit?
Private credit refers to lending provided by non-bank lenders to borrowers, often through bespoke financing arrangements tailored to the specific requirements of a business, project or transaction. Private credit loans may be advanced directly by a family office, through a special purpose vehicle, alongside another lender or through a managed private credit fund.
A private credit transaction is often negotiated from first principles. The lender and borrower can negotiate the amount, purpose, availability, interest, fees, maturity and repayment regime. They can also negotiate the financial covenants, information undertakings, controls over disposals, and events of default.
Security is frequently central to the credit analysis. Depending on the transaction, it may include a debenture over a corporate borrower’s assets, legal charges over real estate, legal charges over any shares, assignments of key contracts or receivables, guarantees and subordination arrangements. The value of those protections depends not only on drafting, but also on due diligence, valuation, priority, perfection, registration and the location of the assets.
Why family offices are suited to private credit
The governance and structure of family offices make them suitable for private credit.
Faster decision-making
With leaner decision-making structures, family offices are often able to assess lending opportunities and commit capital much faster than institutional lenders, particularly where a bespoke financing solution is required.
Ability to tailor
Pricing, repayment, covenants and security can be tailored to the finances and purpose of the borrower which is more likely to support a successful lending relationship by creating an arrangement with greater sustainability for the borrower.
Patient capital
Unlike many institutional investors, a family office may be prepared to hold a performing loan to maturity rather than seeking an earlier exit. This longer-term investment horizon can make family offices particularly well suited to private credit opportunities, where capital may be committed for a number of years. It also allows family offices to focus on the underlying strength of a business or project and the achievement of a successful repayment outcome, rather than short-term market movements or liquidity considerations.
Commercial perspective
Families whose wealth was created through operating businesses may bring sector knowledge, entrepreneurial judgement and an understanding of the practical pressures facing borrowers.
Relationship-led investment
Family offices often maintain a smaller number of lending relationships, enabling more direct dialogue with management teams and a deeper understanding of the borrower’s business, strategy and challenges. This can support both the initial underwriting process and the ongoing management of the investment.
Potential benefits for family offices
Income and risk-adjusted return
A loan can generate returns with interest income, arrangement fees, commitment fees and, in some cases, exit fees. As private credit loans to borrowers are often bespoke, it follows that the rate of interest and the fees will need to be adjusted to reflect the risk and costs of providing such loans on a case-by-case basis.
Family offices with a low appetite for risk can focus on borrowers with sufficient assets which can be taken as security, while family offices with a higher appetite for risk may be more willing to lend to borrowers with fewer or less established or stable classes of assets and can therefore demand a greater return.
Diversification
Private credit can provide exposure to different sectors and types of borrowers. It may also provide a return stream that is structured differently from an equity investment with returns generated through interest and fees rather than appreciation in the capital value of any equity.
Values and impact
A family office can use private credit to support activities aligned with the family’s priorities, provided that the investment case remains sound. Examples might include renewable energy, energy efficiency, sustainable agriculture, natural capital, social infrastructure, healthcare or regional growth. Bespoke documentation can link use of proceeds, reporting and, where suitable, pricing to agreed sustainability outcomes. Clear definitions and evidence requirements are important to reduce the risk of vague or unsubstantiated impact claims.
Reliability of English law
For overseas family offices lending into the UK or participating in cross-border transactions, English law provides a well-established and internationally recognised framework for sophisticated financing arrangements and is therefore widely used in international lending transactions. English courts also have substantial experience of complex commercial and finance disputes.
Security over assets situated outside England and Wales will usually require local counsel to assist with the perfection of such security. Tax withholding, regulatory permissions, financial assistance or corporate benefit limitations, insolvency recognition, sanctions and enforcement strategy may also need to be considered by local counsel in each relevant jurisdiction.
Alternatively, parties may resolve disputes via arbitration. Arbitration under institutional rules, including the LCIA Rules where appropriate, can offer a neutral forum and an award capable of enforcement under the New York Convention in contracting states.
Conclusion
Family offices and private credit can be a natural partnership. A family office may offer the patient capital, focused decision-making and commercial judgement that bespoke lending requires. In return, the private credit market can provide regular income, negotiated protections and a direct route to opportunities that reflect the family’s investment strategy and values.
The opportunity should be approached with the same discipline as any other material investment. Clear governance, careful underwriting, realistic valuation, robust documentation and active monitoring are essential. When those foundations are in place, private credit can become a purposeful and resilient part of a family office’s long-term capital allocation.
Our expertise
A successful private credit loan requires more than a facility agreement. It depends on a coordinated process that moves from term sheet and diligence through documentation, funding, monitoring and, if necessary, restructuring or enforcement. Michelmores can bring together specialists across banking and finance, corporate, tax, real estate, private wealth, employment, regulatory, restructuring and insolvency and disputes to assist with every stage of the loan lifecycle.
In addition to advising in respect of more traditional asset classes, Michelmores also regularly advises on innovative finance transactions involving renewable energy, natural capital projects and sustainable business initiatives, combining banking and finance expertise with support from our corporate, real estate, energy, natural capital, private wealth, and tax teams. This means we are well placed to assist family offices in these areas. Our banking and finance team can support family offices and private lenders with:
- structuring the lending vehicle and transaction, including bilateral and syndicated arrangements;
- reviewing or preparing heads of terms which align with the family office’s values and objectives;
- drafting facility agreements, guarantees, security documents, intercreditor or subordination arrangements;
- coordinating legal due diligence, property and corporate searches, security releases, priority and perfection steps;
- advising on drawdown mechanics, interest, fees, covenants, events of default and transfer provisions;
- project management of overseas counsel on cross-border security, capacity, enforceability and local-law requirements; and
- supporting waivers, amendments, refinancings, distressed situations and enforcement.
For family offices new to direct lending, we can also help develop a proportionate suite of precedent documents and a repeatable execution process. This can improve consistency across investments while preserving the flexibility that makes private credit attractive.
Important note
This article is for general information only and does not constitute legal, tax, regulatory or investment advice. The appropriate structure and documentation will depend on the facts of each transaction and the jurisdictions involved.