If you are like most people, you are probably wondering what private credit is and how it is different from other types of credit, especially public credit. Well, we are here to tell you that it is really nothing more than private lending on a large scale.
And we are certainly not talking about banks giving loans to the next wannabe businessmen. We are talking about private equity firms and other financial companies that lend to large businesses with the hopes of earning substantial profits.
Credit on such a large scale is not bad. In fact, local companies, no matter which country they are in the world, need it to fuel the economy. If you know a little bit about economics, you already know that the driving force of the economy is the private sector, not the government sector, although the government can provide that all-important support.
All private businesses need credit in some form to fuel projects that will create jobs and put more money into the national economy. If not new projects, they need it to fund day-to-day operations. So, can you see the need for large private lending companies?
Call them evil (because you believe that lending money is evil no matter what the circumstances), however, you cannot deny that you are also enjoying the benefits of this economic dynamics between lender and debtor in the private sector.
But if you are an office worker, you really do not need to exercise your brains in this part of the economy, unless if you are studying to become an economist or an economic analyst.
If you want to get more information, there are many websites out there that give information on private credit companies out there that provide credit to fuel the activities of the private sector.
For the most part, however, private credit is provided to the businesses by the large banks, which are then controlled by a country’s central bank. While credit is good in the private sector is good, however, there have been many instances where it actually contributed to financial crises.
As a matter of fact, there are many financial analysts who are quick to point out that a ballooning private credit ALWAYS comes before a financial crisis.
So, when you comet to think about it, credit in the private sector is actually a two-edged sword that can contribute to growth or cause the downfall of an economy.