Do Private Credit Providers Pay Advisory/Origination Fees
Have read a lot about Private credit being in a "golden age" of sorts.
Was curious about building an intelligence platform that could match middle market firms looking for funding, including debt investment with the proper capital providers. It's an idea I have been putting some thought into and got a friend who has about 3 years of commercial banking interested in partnering/co-founding.
Was curious, would private credit funds be open to paying small origination fees for companies they find & lend to through the platform? What would the correct pricing be? I know a few firms like this exist & they are young & venture backed.
Was thinking of if either charging 80 basis points upfront as the deal closes to the lender or 96 basis points paid monthly, 8 basis points at a time, over the next year assuming the borrower does not default.
Hope that is a good affordable price for them. Curious if family offices that claim on their sites to offer direct lending investments would be interested as well? Also heard hedge funds have started to enter private credit, would 80 basis points upfront or 96 basis points over NTM be good for them? Perhaps venture debt funds may also be interested. Hoping I can find some boutique funds interested after building an MVP by mid-late summer.
Hoping the platform could also expand into majority or minority equity investments and be an origination/sourcing resource there as well. Thinking we could pay out a portion of our fee to people that refer good targets onto the platform that get funding, the target's lawyers, consultants, accountants ect.
Open to all thoughts, insights, advise ect.
Edits: grammar
Based on the insights from Wall Street Oasis, private credit funds do indeed pay origination fees, though the specifics can vary depending on the size of the deal and the nature of the transaction. Here’s what you need to know:
Origination Fees Structure: In the context of private credit, origination fees are common. For instance, larger deals can benefit from economies of scale, often resulting in lower relative fees (e.g., 50 basis points on $100MM). Smaller deals might incur higher fees percentage-wise.
Fee Acceptance for Platform Services: Private credit funds might be open to paying origination fees for deals sourced through your proposed platform, especially if it efficiently connects them with viable lending opportunities. The fees you mentioned, 80 basis points upfront or 96 basis points spread over a year, seem within a reasonable range based on industry standards for various deal structures.
Interest from Various Investors: Family offices and hedge funds are increasingly participating in private credit, suggesting a potential openness to using platforms like yours for deal origination. Venture debt funds and boutique funds could also be viable targets for your service, particularly if you can demonstrate the value and efficiency of your platform.
Expansion to Equity Investments: Your idea to expand the platform to include equity investment opportunities could further enhance its attractiveness to a broader range of investors, including those looking for both debt and equity positions.
Referral Incentives: Offering a portion of your fee as a referral incentive to professionals like lawyers, consultants, and accountants could encourage them to direct quality deals to your platform, potentially increasing the volume and quality of investment opportunities available.
In summary, your platform concept aligns well with current market practices in private credit, and there seems to be a reasonable expectation that private credit funds would be open to paying origination fees for the value-added service of deal sourcing. As you develop your MVP and refine your fee structure, consider continuously gathering feedback from potential users and adjusting your offerings to better meet their needs and expectations.
Sources: Origination Fees on +$100MM Loans, Private Credit / Direct Lending Comp, Undergraduate Opportunities - Credit Funds, Private Credit / Direct Lending Comp, Private Credit Questions
What you’re describing is the reason investment banks are hired, to connect users of capital with providers of capital. I like the entrepreneurial spirit, but your time would be better spent elsewhere.
it already exists.
I had the same idea.
The good ones don’t
The transaction fees are typically paid by the company in a private debt deal and there is a well established debt advisory network in most markets .
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