Insights from Timothy Wilson, Civitas Capital Management
Private credit has been in the headlines for much of 2026, and most of the coverage has been about property lending. Far less has been written about the other half of the market: lending to established, operating businesses.
For investors, it raises a different question. With a property loan, the security is easy to picture: the land and the building. When a loan is made to a business, what stands behind it?
That was the question Murdoch Gatti wanted to explore in this episode of The Rate of Change. He put it to Timothy Wilson, Co-Founder and Director of Civitas Capital Management, which lends to small and mid-sized Australian businesses, and used the loans Civitas has made as worked examples.
As with every episode, the purpose is to ask, learn and assess. It is not a recommendation of any manager or fund.
Who we spoke to
Timothy began his career as an adviser at Ord Minnett and Macquarie, then moved into distribution for fund managers and from there into private credit. He co-founded Civitas, where his two partners, from investment banking and accounting backgrounds, run the lending.
The opportunity, as Timothy sees it
Civitas lends around $10 million and under to established, operating businesses. Timothy's view is that this part of the market is underserved. The banks find the loans too small, and many larger private credit managers have moved on to bigger tickets. He estimates Civitas proceeds with around one in ten of the deals it sees.
It is a credible argument, and a gap in the market can be a genuine opportunity. It can also exist because other lenders have chosen to stay away. Investors may want to understand which applies before taking the opportunity at face value.
Where the lender sits
Early in the conversation, Timothy said Civitas prefers to sit in the senior position, and Murdoch asked him to explain the capital stack.
A senior secured lender is repaid first if a borrower defaults. Every deal, Timothy said, is assessed through one lens first: how the money comes back if the business fails.
The fund's mandate is broader than its current practice. Under it, Civitas can lend in junior or mezzanine positions, lend to property, and use leverage. Timothy said it would need a meaningfully higher return to go junior, and that the fund carries no leverage today. The mandate allows these things, but the current approach does not use them. That distinction is worth watching over time.
What secures the loan
Murdoch then pressed on collateral. If a borrowing company fell 70%, how would investors get their money back?
Timothy walked through the loans in the book.
A biodiversity credit business. The land was valued at around $4 million. On its own, that would have meant a high loan-to-value ratio (LVR). The company had also pre-sold around $10 million of biodiversity credits to a wind farm operator. Civitas took security over both, and lent $3.8 million, an LVR of around 45%.
A battery storage developer. A short bridge to an equity raise. Timothy said the company had staged milestone payments due across its pipeline and an estimated distressed value of around $80 million, against a loan of about $3.5 million.
A regional medical group. It has decades of operating history and owns its properties. If it defaults, the agreement allows the lender to step in and run the practices until it is repaid. Murdoch asked what happens if the doctors retire. Timothy pointed to government incentives that draw doctors to rural practice.
A property loan, the fourth position, at an LVR of 62%. Timothy said the details were confidential. He described the rule as bridging only to a development approval or construction certificate, with no construction risk.
The principle Timothy described is to bring every relevant asset into the security: land, contracts and operating equipment. His example was a mine with a couple of hundred million dollars of diggers and trucks: why lend against the land alone? Murdoch added a check from his father's banking career: make sure the borrower owns those assets rather than leases them.
The trade-off is that much of this security is less conventional than land and buildings. Pre-sold credits are only as good as the contract and the counterparty behind them. A distressed company valuation is an estimate, not a sale price. Running a medical practice is a very different skill from lending to one. None of this makes the security weak, but it does make it harder to value and to realise. That is why third-party valuations and a lender's experience in workouts matter.
"A complexity premium"
Timothy argues that the higher return here comes from complexity, not extra risk. In his view, investors are paid more because these deals take specialist structuring that larger institutions are not set up to do.
It is a reasonable position. Complexity can also carry risks of its own, in valuation, legal enforcement and the skill of the team. Whether the return is a premium for complexity or compensation for risk is something investors can only judge over time, by looking at how loans behave when they don't go to plan.
Questions that show how a fund is run
Some of the most useful answers came from the practical questions, the ones worth asking any private credit manager.
Distributions are paid quarterly, not monthly. Timothy's reasoning is that the borrowers don't pay interest monthly, so monthly payouts would not reflect the loans.
Cash. The fund can hold up to 15% in cash or cash-like investments. Some of this sits in high-yield bonds to reduce the drag on returns. That improves yield, but high-yield bonds carry market risk of their own, which is worth noting for what is meant to be a liquidity buffer.
Fund size. Civitas intends to close the fund at $150 million, on the view that there are only so many good deals of this size. A cap like that can help keep standards up.
Transparency. Every loan can be seen, with no securitisation or warehousing in between.
York's View
There is a lot here that investors would want to see in a private credit manager: senior security, low LVRs, short loan terms, no leverage, a cap on fund size and a transparent book.
There are also things that only time can answer. The examples here come from a young fund, lending since May 2026, with four loans and no research rating yet. They illustrate an approach; they don't prove it. Some of the security is unconventional, and the mandate allows more than the manager currently does.
This is how we approach any private credit manager. The structure tells you how a fund is meant to work. The track record, especially through a difficult period, tells you whether it does. Private credit can play a useful role as a source of income that behaves differently from shares and bonds. It should be sized to an investor's objectives, income needs and tolerance for illiquidity. Many funds in this space, including the one discussed, are open to wholesale investors only.
Final Thought
The purpose of these conversations is to ask, learn and assess, not to reach a verdict in an hour. The most useful thing an investor can take from this one is the question Timothy says he starts every deal with: if this goes wrong, how does the money come back? It is a good question to ask before looking at what any investment pays.
Questions investors ask about private credit
What does senior secured mean in private credit?
A senior secured lender is repaid first if the borrower defaults, ahead of junior, mezzanine or subordinated lenders. It is generally the lowest-risk position in the capital stack.
What is LVR in private credit?
Loan-to-value ratio: the loan as a percentage of the value of the security behind it. A lower LVR means a larger buffer if values fall. Ask for the LVR on each loan, not only the portfolio average, and how each valuation was done.
How is a loan to a business secured, if not by property?
Security can include property, contracted revenue, receivables, equipment and the business itself. Lenders often combine several. Less conventional security can be harder to value and to sell, so the lender's experience in workouts matters.
What should I ask a private credit manager?
Where the fund sits in the capital stack.
The LVR on each loan.
What secures each loan, and how it is valued.
How long the loans run.
Whether the fund uses leverage, and whether the mandate allows it.
How much it holds in cash, and in what.
Whether fund size is capped.
How long the track record is.
Whether you can see every loan.
Listen to the full episode of The Rate of Change with Timothy Wilson on Apple Podcasts, Spotify and YouTube.
If you would like to discuss how private credit may fit within your portfolio as part of a broader asset allocation, please get in touch.Written by
Murdoch Gatti
Private Wealth Manager | MComm Fin
mgatti@ywm.com.au
0450 003 135
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