How private credit prices a loan

Where the numbers come from

Most private loans are never priced in public. The exception is the business development company, a US lender that must file every loan it holds with the SEC each quarter.¹ Each filing gives the borrower, the rate, the margin, the maturity, the cost and the fair value. At 30 June 2026 there were 165 of them, holding $371.7bn of term loans to 7,316 companies. They are not the whole private credit market, but they lend on the same terms as the funds that do not report, and often alongside them.

This guide uses those filings to show what is normal. The figures are for US loans to companies, mostly owned by private equity. A UK or European loan will differ in the base rate and some conventions, but the parts are the same.

1. The base rate

Almost every private credit loan floats. The interest is a base rate, reset every one to three months, plus a fixed margin. In US dollars the base rate is now SOFR, the secured overnight rate published by the New York Fed.² In sterling it is SONIA, published by the Bank of England.³ In euros it is usually EURIBOR.

Floating rates move the interest-rate risk to the borrower. When rates rose in 2022 and 2023, the cost of every floating loan rose with them, and many borrowers who had been comfortable at 7% found themselves paying 12%. A borrower that cannot carry that risk can hedge it with a swap or cap, and lenders often require it to.

2. The margin

The margin, or spread, is the lender's price for the risk of the borrower. It is quoted in basis points: 500bp is five percentage points over the base rate.

Across the BDC books at 30 June 2026, the median term loan paid 500bp. One in ten paid 350bp or less, and one in ten paid 650bp or more. The median reported all-in rate was 8.73%.

The distribution has a long tail on both sides. Below 350bp are mostly loans to large, stable borrowers where banks and syndicated markets compete. Above 650bp are loans to smaller or riskier companies, loans in specialist sectors, and loans that have been repriced after trouble.

What sets the margin within that range is mostly risk and competition. The borrower's leverage and the size and stability of its earnings decide risk. Competition is visible in the data. Borrowers with a single BDC lender paid a median of 525bp. Borrowers whose debt was shared among seven or more BDCs paid 475bp.

That 50bp is partly about size, since bigger borrowers need more lenders. It is also about choice. A borrower that can bring several lenders to the table can make them compete, and the price falls.

3. Fees

The margin is not the whole price. Most private loans carry an upfront fee, usually taken as a discount: the lender advances 98 and the borrower owes 100. That is called original issue discount, or OID, and it adds to the lender's return. A two-point fee on a five-year loan adds roughly 40 to 50 basis points a year to the yield, depending on how long the loan stays out.

There may also be a commitment fee on undrawn money, an agency fee if one lender administers a club, and an exit fee. In the UK dental group we wrote up as a case study, arrangement fees came to about 4.6% of a £20m facility.

Always compare loans on their yield, the return to the lender with every fee included, not on the margin alone.

4. The floor

A floor sets a minimum for the base rate. If a loan has a 1% SOFR floor and SOFR falls to 0.5%, the borrower pays as if it were 1%. Floors were standard when rates were near zero and still appear in many loans. They matter only when rates are low, which is exactly when borrowers forget they are there.

5. Interest paid in kind

Some loans let the borrower pay part of the interest by adding it to the loan instead of paying cash. This is PIK, payment in kind. It keeps cash in the business and costs more, because the unpaid interest itself bears interest.

At the 156 BDCs that reported in the last two quarters, loans with a PIK rate made up 10.32% of term loan principal at 30 June 2026, up from 9.91% three months before. The median PIK component was 3.75 percentage points. Larger borrowers use it more: a fifth of those owing more than $500m have a PIK loan.

A PIK option written in at the start can be a sensible structure for a company that is growing fast and expects to repay from a sale or refinancing. A PIK option added later, in exchange for a waiver, is usually a sign of strain.

6. Call protection

A lender that charges a high margin wants to keep earning it. If the borrower's fortunes improve, it will want to refinance at a lower rate. Call protection makes that expensive for a period. A common form is a premium on early repayment, such as 2% in the first year and 1% in the second, sometimes written as "102, 101". Some loans have a period in which they cannot be repaid at all, or must pay all the interest the lender would have earned.

Call protection is often the term borrowers negotiate least and regret most.

7. Covenants

Covenants are the promises the borrower makes. Incurrence covenants restrict what it can do, such as borrowing more, paying dividends or selling assets, unless it meets a test at that moment. Maintenance covenants must be met every quarter, whatever the borrower does. The most common are a maximum ratio of debt to earnings and a minimum ratio of earnings to interest.

Large borrowers often negotiate loans with no maintenance covenants at all, known as "covenant-lite". Smaller borrowers in private credit usually have one or two. They are the lender's early warning: a covenant breach does not mean default, but it brings the lender to the table while there is still value to protect.

8. Tenor and repayment

Most private credit term loans run five to seven years and repay most of their principal at maturity. Some require a small amount each year, often 1%, with the rest due at the end. That makes the maturity date the moment of greatest risk for the borrower, because the loan must be refinanced or repaid in full.

The BDC books show where those dates fall. Of the principal whose maturity the BDCs report, $2.8bn falls due in the rest of 2026, $9.5bn in 2027 and $18.7bn in 2028, rising to $35.6bn in 2031.

9. Who the lenders are

The market is more concentrated than its reputation. The ten largest BDCs hold 46.5% of all BDC term loan principal. The largest, Blue Owl Credit Income, held $33.8bn, and Apollo Debt Solutions $28.3bn.

Behind those vehicles sit the same managers' private funds, separate accounts and insurance balance sheets, which lend on the same deals and do not report. The BDC books are the visible part of a larger market, and its structure is the same.

A worked example

Suppose a company with $20m of annual earnings borrows $80m at SOFR plus 525bp, with a 1% floor, a two-point OID and a five-year maturity. SOFR is 4%.

• The cash interest is 9.25% a year, or $7.4m.
• The OID means the company receives $78.4m and owes $80m. Spread over an expected life of three to four years, it adds roughly 0.5 to 0.7 points a year to the lender's yield.
• If the loan has a maximum leverage covenant of 5.0 times, the company's earnings can fall by a fifth before it breaches.
• If it can be repaid at 102 in year one and 101 in year two, refinancing in year two costs an extra $0.8m.

The all-in cost to the company is a little under 10% a year, before any PIK, hedging or exit fee. Change the number of lenders competing, the covenant, or the call terms, and that figure moves more than the margin alone would suggest.

Cite as: “How private credit prices a loan”, Norvian Review, 1 October 2026.