Private credit, what is it and how does it stimulate Mexican companies?

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Throughout the life of Mexican companies they are looking for capitalization alternatives for their development, of which types of investment that arise in the market stand out due to the demand of more companies such as private credit. 

In a scenario of rapid business and company development, these alternatives function as a flexible mechanism for the parties involved: investors and entrepreneurs. Model that responds to the constant change in the market.

For decades the development of companies has been essential for the Mexican economy. The activity represented by small and medium-sized companies or SMEs is equivalent to 52% of the country's growth. Hence the importance of investing in its consolidation.Hence the importance of investing in its consolidation.

Not only that, the emergence of these companies represent one of the main sources of work in the country. According to the National Institute of Statistics and Geography (Inegi), 7 out of 10 jobs in the country are created by an SME. 

It may interest you: Emerging markets with private capital, opportunity for investors.

What is private credit? 

Private credit is a type of strategy that contemplates loans with different conditions than traditional models focused on capitalizing companies, startups and corporations with debt and equity characteristics. 

Jorge Schaar, partner in Private Equity and Financing at Deloittein the What is private credit? Types, advantages and disadvantages explains that with a developing industry this new mechanism stimulates the development of small and medium-sized companies. 

The structure of private credit works similar to private equity. This means that, like a private equity fund, the resources invested are allocated to productive projects and companies in different stages, with the difference that these resources go as debt. 

Schaar adds that private credit is a capitalization complement for small companies with competitive conditions, with better costs and rates adapted to reality and to the stage in which those same companies are.

For the investor, this flexible capital has a structure of greater certainty. This is because there is a document of how much and how to receive that return. Situation that adds certainty. 

You can also read: Inversionsitas en México impulsan círculo virtuoso en el ecosistema.

Private credit: challenges in its development

Within the ecosystem, both companies and startups find different options to capitalize and grow. Recently, the figure of private credit has become the capital that supports its expansion and modernization. 

Generally, companies opt for their own money, or that of friends and family as the first resource to start their projects to boot. They even resort to traditional alternatives such as personal loans, or have liquidity through their own providers. 

The Inter-American Development Bank (IDB) on private credit evaluates the opportunity of this type of capitalization in markets such as Latin America and the Caribbean due to the customization of the mechanism in issues such as times, commissions and flexibility in the process as well as requirements for get it. 

All this makes private credit one of the best strategies that institutional investors will include in their portfolios, the BID in its analysis.

However, there is a lack of knowledge about how private capital credits work. Jorge Schaar points out that this is one of the main factors that prevent access to these mechanisms. 

“Debt is a funding alternative that, when used properly, gives a lot of profitability, which is extremely important. We see that there is a market for using this type of funding. Although ignorance is an important barrier”.

Revive el Webinar: ¿Qué es el crédito privado? Tipos, ventajas y desventajas con Jorge Shaar.

A new partner in the industry

The reactivation of the economy and the promotion of entrepreneurship after the pandemic is one of the relevant challenges on the global agenda. With a brake on the main economic pillars, this objective became one of the main tasks in countries like Mexico. 

The private capital partner of the Deloitte firm adds that this type of credit is an alternative to achieve this reactivation and impulse of Mexican companies. Private credit is an interesting alternative for this.  

From the investor's perspective, this type of flexible alternative represents great profitable potential in markets such as Mexico and Latin America, with the potential to generate a positive impact on the development of companies. 

In addition, private credit funds are becoming an attractive investment option for institutional players who are increasingly turning to alternative markets. 

"Well-used debt offers profitability and there is a very marked focus on the movement of resources." 

Debt funds or venture debt in the private equity industry is a new mechanism that is taking shape between institutional players and the entrepreneurial ecosystem. 

Within the private equity industry there are different types of investment for the ecosystem. From models that assume the capitalization of small companies with debt or private credit to alternatives such as venture capital. Any type of capitalization for companies and investors are key pieces to stimulate the development of more companies and move the economy.

WORTEV CAPITAL is a private equity fund that focuses on investing in innovative Mexican companies and startups with high scalability potential.

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Mexican companies find private credit a flexible capital alternative for expansion.

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