From opportunity to investment: how a private credit loan gets originated

For advisers assessing a private credit manager, the loans that make it into a portfolio tell only part of the story. Just as important is the pipeline behind them – where opportunities come from, how they are screened, and how willing the manager is to walk away.

Origination is the first stage of risk management. A strong process is designed to find good opportunities, but also to filter out deals that do not meet the manager’s investment criteria before significant time or capital is committed.

Where opportunities come from
Private credit opportunities can arrive through a range of channels, including borrowers directly, commercial finance brokers, advisers, developers and other market introducers. Established managers typically build these networks over time, creating repeat access to borrowers and transactions across different market conditions.

For advisers, the size of the pipeline matters less than its quality and diversity. A broad origination network gives a lender choice. That choice supports discipline because the manager does not need to stretch its lending criteria simply to put capital to work.

The first screen
Most opportunities should never progress to full due diligence. The initial screen is designed to establish whether a transaction fits the fund’s mandate and whether the basic risk-return equation makes sense.

The lender will typically look at the borrower, the purpose of the loan, the asset being offered as security, the amount requested, the proposed loan-to-value ratio (LVR), the likely loan term and the expected repayment pathway. For property-backed lending, location, asset type, project stage and the borrower’s equity contribution also matter.

If those fundamentals do not stack up, the deal should stop there.

Understanding the borrower
For opportunities that pass the first screen, engagement becomes more detailed. The lender needs to understand who is ultimately responsible for executing the strategy and repaying the loan – not simply the entity named on the documents.

That means assessing the borrower’s track record, financial position, experience with comparable projects and capacity to manage setbacks. The proposed exit is equally important. Whether repayment is expected through a sale, refinancing or operating cash flow, there needs to be a credible and realistic path to repayment from the outset.

Selectivity is part of the strategy
A high-quality origination process is defined as much by the deals declined as by those completed. When managers have a strong pipeline, they can remain patient, compare opportunities and progress only those that meet their standards.

For advisers comparing private credit funds, this is an important point of differentiation. Origination is not simply about deal flow; it is about whether the manager has the access, experience and discipline to choose selectively from that flow.

Key learning
Origination is the first filter in private credit. Advisers should look for managers with broad sourcing networks, clear screening criteria, strong borrower engagement and, importantly, the discipline to say no. The quality of a portfolio begins well before a loan reaches the credit committee. For advisers, asking how many opportunities are screened out – and why – can be just as revealing as reviewing the loans that ultimately make it into the fund.