Private Credit Is Not Cheap Money: Covenants, Security and Exit Terms to Understand

The headline interest rate is only one part of a private-credit proposal. Promoters should understand how the documents change cash obligations, management choices and exposure if performance falls short.

Generic office building, illustrating business funding and planning

Image: Side of office building by Alanthebox; CC0 1.0. Unmodified, illustrative photograph.

Build an all-in payment schedule

List every drawdown and payment: upfront fees, cash interest, capitalised interest, principal, redemption amounts and other contractual charges. Use actual dates and distinguish amounts deducted from proceeds from amounts payable later.

An illustrative ₹20 crore commitment with ₹1 crore withheld produces ₹19 crore of initial cash, before any other deductions. Comparing its cost with a facility delivering the full ₹20 crore requires more than comparing coupon rates. These figures illustrate mechanics, not market pricing.

Translate covenants into decisions

Identify financial tests and how they are calculated. Check measurement dates, reporting obligations, permitted adjustments and any cure provisions. Then examine restrictions on borrowing, dividends, acquisitions, asset sales and related-party transactions.

A covenant breach may arise before a payment default. Management needs a monitoring process that gives it time to respond.

Trace the security package

Record the assets charged, ranking, guarantee providers and release conditions. Review cross-default and cross-collateral provisions across group entities. Under the Indian Contract Act, guarantee exposure depends on the law and contract; do not assume it ends when management changes or an operating company encounters difficulty.

Read the exit in both directions

What happens if the business repays early? What happens if it cannot repay at maturity? Examine prepayment restrictions, minimum-return arrangements, enforcement rights and any conversion or equity-linked provisions with qualified advisers.

Terms vary by provider, instrument and regulatory route. SEBI regulation of an AIF is not a certification that a borrower’s transaction is suitable.

Before signing, ask the finance team to explain the documents through three scenarios: on-time repayment, early repayment and a downside breach. Any outcome that remains unclear should be resolved in the written terms, not left to a verbal assurance.

Connect with Monei Matters

Discuss the commercial implications of a proposed private-credit term sheet with Monei Matters, alongside independent legal advice.

Monei Matters
B-9, Near City Centre Market, Ramprastha, Ghaziabad, Uttar Pradesh 201011
Phone: +91 93138 03227 / +91 93110 03227
Website: www.moneimatters.com

Services include business finance, working capital, commercial mortgage/LAP, lease rental discounting, debt syndication, restructuring, settlements, FDI advisory and equity syndication.

Disclaimer

General information based on sources reviewed for the position as at 10 September 2026; not transaction-specific legal, tax or investment advice. Illustrations are hypothetical. Applicable law, documents and lender or investor terms govern each case; funding and settlement outcomes are not guaranteed.

Sources

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