Non-sponsored loans
Sponsor-backed loans
Non-sponsored loans are issued to privately owned companies without private equity backing, which often results in higher yields due to having a less competitive market. These loans come with increased risk, as the businesses often lack to the financial means to add more equity capital since the bulk of the owners’ wealth is already tied up in the business in most cases. Sourcing these loans requires building direct relationships with business owners and performing intensive research, so they usually come with higher yields, lower loan-to-values, or both.
These loans are mostly senior (loans with a safer, higher priority of repayment) and it tends to be a more competitive market, resulting in more stable and moderate returns, absent leverage. The backing of private equity firms can reduce risk, as they have the financial means to inject additional capital if needed. However, this competitive environment leads to lower yields compared to non-sponsored loans on like for like deals