What this article will teach you
Clear definitions of direct lending and private credit
How the two overlap (and where they diverge)
The main strategies inside private credit (beyond direct lending)
A practical decision framework: which one fits your capital, risk tolerance, and time
How JBB-style private real estate lending compares to institutional private credit
Definitions first: direct lending vs private credit
What is private credit?
Private credit is a broad asset class: privately negotiated loans (not traded on public markets) originated outside traditional banks. It can include multiple strategies beyond “plain vanilla lending,” such as distressed, special situations, mezzanine, and more.
What is direct lending?
Direct lending is typically described as a subset of private credit: non-bank lenders (often funds) making loans directly to borrowers—commonly middle-market companies—instead of buying syndicated loans or public bonds.
Simple way to remember it:
Private credit = the umbrella
Direct lending = one big category under the umbrella
Why people mix them up
In many investor conversations, “private credit” is shorthand for “direct lending” because direct lending is the most common exposure many investors have within private credit.
But if you’re evaluating a fund, “private credit” can mean very different underlying risk depending on whether the manager does:
senior secured direct loans,
mezzanine,
distressed/special situations,
asset-based finance,
venture debt,
and so on.
What “private credit” can include (beyond direct lending)
Depending on the manager, private credit strategies often include some combination of:
Senior secured direct lending (often first lien / unitranche)
Mezzanine debt
Distressed debt / special situations
Venture debt
Asset-based finance (ABF) (lending secured by cash-flowing collateral pools)
So when someone says “I’m investing in private credit,” your follow-up question should be:
“Which sleeve—exactly—and where am I in the capital stack?”
How returns are generated (and why it matters)
Institutional direct lending / private credit (typical)
Returns generally come from:
interest (often floating-rate),
fees (origination, OID, call protection, etc.),
and recoveries if things go sideways (depending on seniority/collateral).
JBB-style private real estate lending (typical)
JBB’s private lending framework—commonly called private/hard money lending in real estate—frames the economics simply as:
origination points upfront
monthly interest
principal repayment at payoff
JBB emphasizes that you can model a private lending deal on a handful of lines, then refine from there with fees and process.
The biggest practical difference: who controls underwriting?
Here’s the decision-making reality most people miss:
With private credit funds (including direct lending funds)
You’re typically an LP (limited partner). You’re betting on:
the manager’s underwriting,
their covenants,
their workout ability,
and their portfolio construction.
You have outsourced control.
With direct private lending (JBB approach)
You can design your own “bank.” That starts with your credit policy—your non-negotiables—so you aren’t relying on gut feel or the borrower’s sales pitch.
JBB’s framing is blunt: flexibility without structure becomes inconsistency… and sometimes expensive chaos.
A side-by-side comparison (the version you can actually use)
| Dimension | Direct Lending (typical) | Private Credit (broader) | JBB Private Real Estate Lending (direct) |
|—|—|-panies + multiple credit “sleeves” | Real estate investor-operators (e.g., flippers) |
| What “private credit” includes | Usuall A form of private credit in real assets (real estate) |
| Control over underwriting | Mostly outsourced to manager | Outsourced to manager | You control underwriting + terms |
| Liquidity | Often illiquid | Often illiquid | Usually illiquid until payoff, but durations can be shorter |
| How you get paid | Interest + fees (varies) | Depends on strategy | Points + interest + payoff of principal |
| Risk management focus | Covenants, seniority, diversification | Strategy-dependent | Credit policy + borrower/deal discipline
Where “direct lending” and “private credit” sit in the money world
Think of it like this:
**Priva(outside public bonds / traded loans).
Direct lending is one of the biggest, most mainstream strategies inside that category.
Private real estate lending (JBB style) is also private credit—just applied to asset-backed real estate deals, where you can often define terms, collateral protections, and borrower requirements directly.
The JBB lens: “ultimate” isn’t the product—it’s the policy
If you want to “be the bank” without getting cute, your first job isn’t picking the perfect label.
Your first job is building repeatability:
your credit policy (your lending gospel),
your borrower standards,
and your process for saying “no” quickly. e warning is worth internalizing:
In private lending, the biggest mistakes don’t come from saying “yes.” They come from not sayin
That principle applies whether you’re underwriting your own real estate notes or selecting a private credit fund manager.
Decision framework: which one is right for you?
Use these three questions.
1) Do you want control—or convenience?
If you want convenience and professional underwriting: you’ll lean toward private credit funds.
If you want control and customization: you’ll lean toward direct private lending with your own credit policy.
2) Can you tolerate illiquidity?
Both are generally illiquid. The difference is that many real estatel returns at payoff—then you can redeploy. (That redeployment/turnover is a major part of return engineering in the JBB playbook.)
3) Do you have (or want) an underwriting process?
If you don’t have a process, start by building one before you chase yield
Common misconceptions (belief rewiring)
“Direct lending and private credit are totally different.”
“Private credit is safer because it’s ‘professional.’”
Professional doesn’t mean risk-free. It means you’re relying on a manager’s discipline, underwriting, and portfolio construction.
“If it’s collateralized, I’m fine.”
Collateral helps, but JBB’s framework emphasizes that you’re still entering a financial relationship—and discipline (credit policy) is what keeps you out of the ditch. whether you’re pursuing manager-led exposure (private credit funds) or self-directed exposure (direct private lending).
2) If you’re evaluating funds, ask: Which strategy sleeves? Where in the capital stack? What’s the underwriting box?
3) If you’re doing direc anything.
4) Keep your goal simple: repeatable outcomes, not “clever” deals.
