A B2B pest control company in Singapore. Twelve years old. Sixty-eight recurring commercial accounts. EBITDA of SGD 580,000, steady across the last three years. The business is not exciting. It is consistent. The owner wants to retire. The buyer who steps in to acquire this business is going to need private credit — and understanding why that is reveals something important about how SME financing actually works in Southeast Asia.
A buyer has signed an LOI and now needs to finance the acquisition. The bank runs the numbers: the business does not own its premises, the client contracts are month-to-month, and the loan ticket sits below the threshold for the bank’s commercial acquisition lending team. Declined. The buyer approaches a venture capital firm: the business grows at roughly the rate of inflation, there is no scalable technology component, and the natural exit path is a long-term hold or a trade sale in ten years. The VC is not interested.
The buyer is left with a choice between a large personal equity commitment or finding a capital source that is comfortable with this business as it actually is. That source is private credit, and understanding how it works changes how SME acquisitions get done in Southeast Asia.
What Private Credit Actually Is
Private credit is a form of debt financing originated, underwritten, and held outside the public bond market and outside the traditional banking system. The lender is not a bank and not a public fund. It is a credit manager — an institution, family office, or specialist lending platform — that deploys capital directly into businesses or acquisitions and earns its return through the coupon on the loan rather than through equity upside.
For SME acquisitions in Southeast Asia, private credit typically takes the form of a senior secured term loan: a fixed amount advanced against the enterprise value or cash flow of the target business, with a defined repayment schedule, a fixed or floating interest rate, and security over the business assets. Rates for senior secured private credit in Singapore-dollar acquisition transactions typically run in the 8 to 12 percent per annum range for SME-scale deals, depending on deal size, sector, leverage level, and lender appetite at the time.
Global private credit assets under management reached approximately USD 1.7 trillion as of the end of 2023, according to Preqin, making it one of the fastest-growing segments of the alternative investment industry. Asia Pacific represents a growing share of that deployment, driven partly by the compression of bank lending conditions and partly by increasing appetite among regional family offices and institutional investors for credit exposure that generates stable cash yield without equity-level risk.
What Goes Wrong When It Is Misunderstood
The most common misunderstanding about private credit in the SME context is that it is a lender of last resort — the option you take when nothing else works, at a price that reflects desperation. That framing is wrong in two directions.
First, private credit is priced at a premium to bank lending because it provides access, flexibility, and speed that bank lending cannot match — not primarily because the borrower is weaker. A business that cannot access bank financing because its loan ticket is too small, its asset base is insufficiently tangible, or its revenue structure does not fit the bank’s covenant parameters is not a distressed business. It is a business that does not fit the bank’s product. Those two things are not the same.
Second, private credit documentation typically provides more operational flexibility than bank lending. Maintenance covenants — the quarterly financial tests that can trigger a technical default when a business has a soft quarter — are less common in private credit structures. For acquisition targets where the first twelve to eighteen months of new ownership often involve some operational disruption as the buyer establishes themselves, that flexibility is not a minor consideration.
The misunderstanding that causes real damage is treating private credit and bank debt as equivalent products priced at different rates, then optimizing purely for the rate. The rate differential matters. The covenant structure, the lender’s response to a missed test, the speed of the credit process, and the lender’s familiarity with SME acquisition transactions matter more.
What This Means for the SME Buyer or Seller
For the buyer of an established SME in Southeast Asia, the practical implication is that the capital stack does not need to be fully resolved before an LOI is signed. Understanding which lenders are active in which deal types, what their ticket size parameters are, and what their underwriting requirements look like is work that should happen in parallel with deal sourcing — not after a target is under exclusivity.
For the seller, private credit as a buyer financing tool means a broader range of credible buyers can bring a transaction to close without requiring a large personal equity commitment or a fully bank-financed structure. Sellers who care about deal certainty — who have watched a transaction collapse because the buyer’s financing fell through after a long exclusivity period — often treat a buyer’s ability to demonstrate their capital stack as a material selection factor.
What I Would Tell a First-Time Buyer
Sitting across from a private credit lender for the first time, the thing most buyers underestimate is how granular the underwriting becomes. The lender has one question operating through every line item of the deal: what is the downside scenario, and how do I get repaid if it happens? Customer concentration, contract tenure, working capital cycle, key person dependency — each is evaluated through that lens, not the optimistic case the buyer is presenting.
The buyers who navigate that conversation well are the ones who have already done it themselves before walking in. Not because the lender needs reassurance, but because a buyer who has stress-tested their own deal assumptions is a different kind of counterparty than one showing up hoping the lender will underwrite their optimism.
For how private credit fits into the broader acquisition financing structure alongside seller notes and bank debt, why seller financing interacts with senior debt differently in a tightening cycle covers the blended capital stack in full. For context on why the supply of acquisition targets in Southeast Asia is building, the succession dynamics opening up SME deal flow across the region and how the search fund model is adapting to capitalize on that supply provide the surrounding picture.
This content is published for informational and educational purposes only. It does not constitute financial advice, investment advice, or a solicitation to invest. Luxry Capital does not manage a public fund and does not make investment recommendations to the public. All views expressed are those of the named author based on publicly available information and personal analysis.
