What you really pay in a private credit term sheet.
A private credit term sheet quotes a coupon, and the coupon is the smallest part of what the loan costs. Around it sits a stack of separate charges a bank rarely uses: an original issue discount that funds you below the face value you repay, an arrangement fee heavier than a bank’s, interest that can roll up into the balance instead of being paid in cash, a premium for leaving early, and on some deals a slice of your equity or a fee on money you have not yet drawn. None of them shows up in the headline rate, and every one of them lifts the return the fund earns above the number on the front page. This guide takes each charge apart, in the order you meet it in the paper, and shows how the lot stacks into a true yield you can set against a bank. The figures are at August 2026 rates.
Written for the borrower’s side of the table. This is general guidance, not advice on your specific facility. It deepens the shorter answers in our working guide.
A margin over SONIA, and the most honest line in the term sheet.
A private credit loan is priced as a floating margin over SONIA, and in the UK mid-market that margin is broadly SONIA plus 550 to 800 basis points. SONIA sat at 3.73% on 2 July 2026 against a Bank Rate of 3.75%, held at the Bank of England’s June meeting. Bank of England, Bank Rate. So the coupon on a fund deal lands at roughly 9.25% to 11.75% before a single fee, against a clean bank term loan at an all-in near 6.75%, a 3% margin over the same reference. The coupon is the money you can see, it moves with leverage, sector and credit quality, and it is the number every fund leads with.
The coupon is also, unusually, the honest part. It is stated as a rate, it is easy to compare, and a competitive process moves it. Where private credit differs from a bank is everything bolted on around it. A bank charges a margin and a modest arrangement fee and stops. A fund earns its return from a stack of charges that sit outside the coupon, most of them structured so they do not read as interest at all, and the gap between the quoted rate and the true yield the fund books is the whole subject of this guide. The wider comparison of a fund against a bank, on cost, leverage and covenants, is in our guide to unitranche and bank senior debt.
The fund advances you less than you sign up to repay.
Original issue discount, or OID, means the fund advances you less than the face value of the loan while you still repay the face in full. On a facility documented at 100 with an OID of one point, you draw 99 and owe 100; the point the fund keeps is its money from day one. On UK senior and unitranche private credit, an OID of one to two points is common, running to two or three on some deals, so a £10m loan at 98 funds you £9.8m and repays £10m. It is quoted as a price rather than a fee, which is exactly why borrowers miss it.
In substance the discount is an extra upfront fee, and it does a little more than a fee does. Because the return is earned on money that was never advanced, and earned faster if the loan is repaid early, the discount lifts the fund’s true yield above the coupon and front-loads part of it. That is the point of the structure: it accretes yield without touching the rate on the page, and it hardens the fund against a borrower refinancing away cheaply. Treat it as what it is, an upfront cost, and count it in the total you compare, exactly as our guide to the all-in cost of raising debt sets out.
A one-off charge at close, heavier than a bank’s.
The arrangement fee, also written as an upfront, structuring or completion fee, is a one-off charge paid at completion, and on a private credit deal it is commonly 1.5% to 3% of the facility against nearer 1% on a bank. It is charged on the committed amount rather than only on what you draw, so a facility sized larger than you need carries its fee on the unused part as well. On a £10m fund facility a 2.5% fee is £250,000, payable whether the deal runs its full term or you refinance in a year.
The arrangement fee and the discount stack, because they are separate charges doing the same job. A fund can quote a keen coupon and take its margin back through a 3% fee and a 1% OID at close, and a borrower reading only the rate would never see it. The fee is more negotiable than borrowers assume, and it moves on the same lever every other line moves on, competition. A fund that knows it is the only bidder has no reason to shave it; a fund that knows two others are quoting does.
Interest that rolls into the balance instead of being paid in cash.
PIK, payment-in-kind, interest is not paid in cash each period; it is added to the loan balance and compounds, so the debt grows through the term and the accrued sum falls due at maturity or on exit. Cash-pay interest is the ordinary case, settled quarterly out of the cash the business generates. PIK is the alternative for a borrower who would rather preserve cash now and settle later, and it appears on the stretchier, growthier fund deals where the plan needs its cash for the business rather than for debt service in the early years.
A PIK toggle is the option to switch. The agreement lets the borrower elect, period by period, to pay a slice of the coupon in cash or roll it up, and the rolled-up rate is set higher than the cash rate, often by a step-up of 50 to 75 basis points, to price the fund’s wait. The mechanic is a genuine cash-flow tool and it is also the most expensive money in the structure, because interest compounds on interest and the balance you repay is larger than the balance you drew. Used deliberately, to carry a business through an investment phase, it earns its cost. Used to paper over a plan that cannot service its debt in cash, it defers a problem and enlarges it.
A premium for leaving before the fund’s expected hold is up.
Call protection is the premium a fund charges if you repay before an agreed date, and an exit fee is a flat charge levied on repayment; together they price the fund’s expectation of a multi-year hold. A fund raised its capital to earn a return over years and does not want you refinancing the moment cheaper money appears, so a private credit facility usually carries a short non-call period followed by a prepayment premium that steps down, commonly around 2% to 3% in year one, falling to par by year three. Occasionally a make-whole applies, which compensates the fund for the interest it would have earned to a set date and can be expensive enough to lock you in.
A bank sits at the other end of this. Most bank term loans can be prepaid at par with no penalty, and a bank revolver draws and repays freely, which is one of the quiet advantages of the cheaper structure if you expect to sell or refinance. On a fund deal the protection matters most to exactly the borrowers who look past it: anyone expecting a sale, a recapitalisation or a refinancing inside the protected years, for whom a keen coupon with heavy call protection is the dearer deal once the exit premium is paid. It belongs in the all-in comparison alongside the margin, and it is worth negotiating the step-down shorter or carving out a repayment at par on a change of control.
Some deals add a slice of equity, or a fee on money you have not drawn.
Some private credit deals carry two further charges a bank rarely uses: a warrant or equity kicker that gives the fund a small share of the upside, and a ticking fee on committed money you have not yet drawn. A warrant is a right for the fund to subscribe for a small slice of equity, or to take an equivalent synthetic return keyed to a sale or a valuation, so part of the cost of the loan is paid in ownership and exit value rather than in interest. It appears where leverage is stretched or the credit is growthier, and it is the one charge that is not simply a number: it converts a slice of what you build into part of the lender’s return, and it is worth resisting or capping hard where the coupon already prices the risk.
A ticking fee runs on undrawn committed money. On a delayed-draw term loan or an acquisition facility, where the fund commits the capital now but you draw it later as the spending lands, the ticking fee compensates the fund for reserving money it cannot lend elsewhere. It commonly starts at a fraction of the margin and steps up toward the full margin the longer the commitment stays undrawn, so a long gap between signing and drawing gets dearer. It is the fund-deal cousin of the commitment fee a bank charges on an undrawn revolver, which sits by convention at around 35% of the margin, and the discipline is the same: size the commitment to what you will draw, and do not pay to reserve money you may never use.
Stacked together, the fees lift the true yield past the coupon.
Stacked together, the charges outside the coupon push the true annual cost of a private credit loan well above the rate on the front page. Take an illustrative £8m unitranche at SONIA plus 6.5%, a coupon of about 10.25%, roughly £818,000 of interest a year. These are illustrative figures at August 2026 rates, not a quote. Add a 2.5% arrangement fee of £200,000 and a one-point OID that withholds a further £80,000, both paid at close, and the upfront cost is about £280,000, some 3.5% of the facility, before any legal, diligence or adviser cost. Spread over a three-year hold, that upfront alone adds a little over one percentage point a year, so the effective annual cost runs past 11% even before call protection or any PIK is counted.
The fund deal
Coupon of about £818,000 a year on the drawn £8m, plus £280,000 of upfront fee and discount at close, plus a prepayment premium if you leave inside the protected years, plus whatever a warrant or a PIK step-up adds. The coupon is the smallest of these once you annualise the rest, which is the whole reason the front-page rate flatters the deal.
The bank deal
The same £8m from a bank at an all-in near 6.75% is about £540,000 of interest a year, an arrangement fee nearer 1% at £80,000, no OID, no call protection and prepayment at par. The coupon gap alone is roughly £280,000 a year, and the fee stack widens it. Where a bank will fund the plan, the fund premium is money spent for nothing; where it will not, the premium buys leverage, structure or speed the bank cannot, and is the cheapest way to get the deal done.
The discipline is one line: ask every lender for a single all-in cost to your expected exit, on identical assumptions, coupon and OID and fee and call protection and any warrant folded into one number, and compare those rather than the coupons. Cheapest headline is frequently not cheapest deal, and the only reliable way to price the whole stack is to run several lenders against each other, because a fund that knows it is being compared prices every one of these lines differently.
We will price the whole stack, not the coupon.
If you are holding a private credit term sheet, or weighing one against a bank, a first conversation is confidential and costs nothing. We take the paper apart line by line, fold the coupon, the OID, the fees, the call protection and any warrant into a single all-in cost to your expected exit, and run it against the rest of the market so you can see which structure is cheapest for your plan. See how a mandate runs in how we work, or the full range of what we advise on in our services.