Private Credit, BDCs & Interval Funds: A Plain-English Guide

As banks retreated from middle-market lending over the past decade, private lenders filled the gap — and three structures became the standard ways individual investors access the resulting income streams. The structures are frequently confused, occasionally interchangeable in marketing decks, and meaningfully different where it counts: liquidity, leverage, and what happens in a bad year.

Private credit, the asset

Private credit is simply lending that happens outside banks and public bond markets: direct loans to businesses, real estate projects, and other borrowers, typically floating-rate and senior in the capital structure. The appeal is straightforward — contractual income at rates that compensate for illiquidity. So is the risk: these are loans to borrowers the public market doesn’t price daily, and credit losses arrive precisely when the economy makes everything else feel worse too.

BDCs, the vehicle Congress built

A Business Development Company is a registered investment company created by Congress in 1980 to channel capital to growing U.S. businesses. BDCs hold portfolios of loans and equity stakes in private companies and distribute the income. They come in publicly traded form — daily liquidity, but share prices that can swing well above or below the portfolio’s stated value — and non-traded form, where liquidity depends on periodic share repurchases at the fund’s discretion. Same acronym, very different ownership experiences.

Interval funds, the middle path

An interval fund is a registered fund that holds illiquid assets — private credit, real estate, infrastructure — but offers liquidity only through scheduled repurchase windows, typically quarterly, for a stated percentage of fund shares. When redemption requests fit inside the window, the mechanism works smoothly. When requests exceed it, investors are prorated and wait for the next window. That is not a flaw; it is the design — the fund is protecting itself from having to sell illiquid assets at bad prices. But it means “quarterly liquidity” is a ceiling, not a guarantee, and investors should size positions accordingly.

What the yield is paying you for

Across all three structures, the income premium over public bonds is compensation — for illiquidity, for credit risk in unrated borrowers, for leverage many funds employ, and for fee structures that deserve the same line-item scrutiny as any private placement. A distribution rate is not a return; portfolio quality, loss history through full cycles, and fee load decide what investors actually keep.

Used deliberately — sized for genuine illiquidity, chosen for manager quality rather than headline yield — these structures can do real work in an income allocation. If you’re evaluating one, bring it in. We’ll go through the portfolio, the leverage, and the repurchase history line by line.