In the dynamic world of finance, private debt loans have emerged as a resilient and stable investment option, exhibiting lower default rates compared to their counterparts in the public domain. Investors and financial experts alike have been intrigued by this phenomenon, prompting a closer examination of the factors that contribute to the impressive track record of private debt loans in terms of default prevention. In this blog, we delve into the reasons behind the lower default rates associated with private debt loans, shedding light on the key elements that make them a preferred choice for many savvy investors. Plus, we’ll explore some features of AXIS by AIO Logic that can help firms mitigate default rates even further!

Rigorous Due Diligence

One of the primary reasons behind the lower default rates of private debt loans is the rigorous due diligence conducted by lenders. Private lenders employ a meticulous approach in evaluating potential borrowers and often specialize their lending to a specific industry or market segment, allowing them to build up an expertise in that area. Unlike public markets where information is more readily available, private debt lenders typically engage in thorough analysis of the borrower’s financial health, business model, and risk factors.

We had this rigorous due diligence in mind when building AXIS by AIO Logic, which is why our platform provides sophisticated out-of-the-box financial spreading and analytics functionality during the underwriting process. Once financials are spread into AXIS, the platform automatically performs vertical, horizontal, and trend analysis in order to calculate 42 financial ratios and score borrower financial health. This thorough analysis allows private lenders to make informed decisions about the creditworthiness of the borrower, reducing the likelihood of defaults.

Covenant Protection

Private debt loans often come with covenant protection, which serves as a set of agreements and restrictions designed to safeguard the interests of lenders. These covenants are carefully negotiated between the lender and borrower, outlining the conditions under which the loan is provided and the borrower’s obligations. Covenant protection acts as a risk mitigation tool, giving lenders the ability to monitor the financial health and performance of the borrower throughout the loan term. In the event of potential financial distress, lenders can intervene and work collaboratively with the borrower to implement corrective measures, preventing defaults before they occur.

The setup and tracking of loan covenants are often a manual and time-consuming process for lenders. That’s why we included features that make it easy for lenders to create and track loan covenants. In AXIS by AIO Logic, all loan covenants are parametric and centrally tracked in the Loan record. After the lender chooses the covenant type from a list and enters parameters, all subsequent covenant tracking and monitoring is automated with related requirements automatically flowing to the Portfolio Manager and Customer dashboards so both sides are aware of the upcoming requirements.

Relationship-Centric Approach

Private debt lending is inherently relationship-centric. Lenders establish close ties with borrowers, fostering an environment of trust and transparency. This personalized approach allows lenders to maintain an ongoing dialogue with borrowers, gaining real-time insights into their financial performance and operational challenges. Lenders are better positioned to work collaboratively with borrowers, offering support and flexibility when needed. Based on these established relationships, lenders may be willing to offer customized loan structures and terms that banks, or even other private lenders, wouldn’t be willing to offer.

For lenders seeking to provide a borrower with customized loan structures or terms, AXIS by AIO Logic makes it easy to do so. When setting up a new loan in AXIS, lenders can choose from a variety of loan structures including full/partial/custom amortization, interest only with balloon, delayed draw, revolving, and more. Additionally, lenders can choose from a variety of interest rate structures, including changing rate interest, where users enter date ranges and the applicable rate for each date range. This interest structure allows lenders to provide great flexibility for their borrowers if needed.

Niche Focus and Specialization

Private debt lenders often specialize in specific industries or sectors, allowing them to develop deep expertise in the businesses they support. This niche focus enables lenders to better assess the unique risks and opportunities associated with particular sectors, resulting in more informed lending decisions. This specialized knowledge also enhances the lender’s ability to identify viable investment opportunities and structure loans that align with the unique characteristics of each industry.

To assist lenders in assessing investment opportunities in particular sectors, AXIS by AIO Logic features a robust suite of automated portfolio reporting and analytics. As part of that analytics suite, AXIS automates tracking of key portfolio KPIs including total yield, cumulative charge-off rate, and default rate. These KPIs can be dynamically obtained by specific attribute, portfolio, or time range, allowing lenders to analyze which types of loans are performing the best. With this knowledge in hand, the lender can then make informed investment decisions in particular sectors.


The resilience of private debt loans in the face of economic uncertainties and market fluctuations is a testament to the effectiveness of their risk management strategies. The combination of rigorous due diligence, covenant protection, relationship-centric approaches, and niche specialization sets private debt loans apart, contributing to their lower default rates. As investors seek stability and long-term value in their portfolios, the unique characteristics of private debt loans make them an attractive option in the diverse landscape of financial instruments. If your firm is seeking to improve your risk management, feel free to contact us today to schedule an intro call and learn more about how AXIS by AIO Logic can benefit your firm!