Estimate private credit income after deployment, borrowing costs, fund charges, loss reserves and tax. This calculator separates nominal after-tax yield from cash available when some interest accrues without payment. Edit the assumptions and inspect the annual funding requirement. Results are simple annual averages on the full commitment, not compounded returns, IRR or inflation-adjusted yields. The examples are built from assumptions, not real fund data, so they cannot tell you anything about credit quality or your tax position, and they are not a recommendation to invest.
A rate on loans, an annual return on committed capital and a cash distribution use different definitions. Compare them only after identifying the denominator, costs, time period and treatment of unpaid interest. A quoted yield can mean several different things, so this page spells out exactly which definition it uses.
The model reserves the full commitment, deploys equity under the stated annual schedule and earns a separate rate on uncalled cash. At the default inputs, a 10.50% asset rate produces 9.40% in average annual income on commitment before costs. That figure includes income on cash held outside the fund, so do not read it as a fund’s likely distribution rate.
Management charges can be modeled on deployed equity, commitment or gross assets including borrowing. At leverage of 1, gross assets are twice deployed equity, so the same percentage management charge doubles relative to that equity base. Actual contract definitions, expenses and timing must be checked separately.
The loss reserve equals the assumed default fraction multiplied by one minus recovery, applied to gross assets. It reduces the modeled economics even when no current tax deduction is assumed. That is deliberate: expecting some loans to default is not the same as having a bad debt the tax code lets you deduct.
The calculator assigns a single rate to its modeled taxable income. Actual private credit investments can produce interest, discount, fees, gains and other items, with different timing or treatment. That is a simplification. Not all private credit income is immediately taxable as ordinary income, and tax is not always the largest cost.
A dedicated annual income model calculates every result on this page. It uses only the displayed assumptions. It does not price a loan book, calculate a yield to maturity or reproduce a fund waterfall or investor tax return.
For year t, deployed equity is commitment multiplied by the target deployment percentage and the smaller of t divided by ramp years and one. That balance is assumed in place for the whole year. Gross assets equal deployed equity multiplied by one plus leverage. Uncalled cash remains outside the fund and earns the separate cash rate.
In the default first year, $3,166,667 is deployed and $6,833,333 remains uncalled. Asset income is $332,500 and outside cash income is $273,333. The loss reserve is $22,167, management charges are $39,583 and fund expenses are $7,917. The fund-only incentive base does not clear the $700,000 annual hurdle, so no incentive is charged.
The annual hurdle is 7% of the full commitment. It is used solely to calculate the modeled incentive and is not an amount guaranteed to the investor. Income on uncalled cash does not help the fund clear that threshold.
That first-year pre-tax economic amount is $536,167. With fee and loss deductions off, and no borrowing, taxable income is $605,833. Tax at 45% is $272,625, leaving $263,542 in modeled net cash. The result is 2.64% of commitment. Amounts are rounded for display.
The schedule is discrete rather than a continuous deployment ramp. A three-year setting uses one third of the target in year one, two thirds in year two and the target thereafter. It does not model actual call dates, capital recycling, subscription facilities or return of principal. Interest on outside cash is included in the investor result but excluded from fund incentive fees.
Leverage is debt divided by deployed investor equity. Asset income and default losses use the resulting gross asset base; borrowing cost uses the debt balance. More borrowing can lift income and still leave the investor worse off once costs and losses are counted. The spread between asset yield and debt cost is only the start of the calculation.
Management uses the selected fee base. Fund expenses and the separate feeder charge use deployed equity. The incentive is a hard annual hurdle on fund income after the loss reserve, debt cost, management and fund expenses, measured above a hurdle on total commitment. Outside cash income and feeder charges are excluded from that incentive base. There is no catch-up, accumulated preferred return or clawback.
Default and recovery inputs produce a constant annual economic loss reserve. The model deducts that reserve from annual proceeds to maintain the scheduled exposure. If proceeds are insufficient, the cash result can become negative and require external funding. It does not simulate principal running down, and it does not assume recoveries arrive on time.
The tax base starts with asset income and outside cash income, less the modeled incentive allocation. Three controls separately assume current deduction of operating fees, the loss reserve and debt interest. A negative tax base creates no refund or carryforward here. The switches let you test assumptions; whether a deduction is actually available, and when, is a legal question for your advisers. The defaults assume no current fee or loss deduction and a current debt-interest deduction.
The selected accrual share remains uncollected within the horizon and is assumed currently taxable. It is counted in economic income but removed from cash income. Accrued balances do not themselves earn additional interest in this sensitivity. The model does not compute a statutory OID accrual schedule or terminal collection. Check the actual instrument and tax rules for PIK and original issue discount.
Each reported yield is the total modeled amount divided by the number of years and by the original commitment. It is a simple nominal annual average, not IRR, compounded return or a real return after inflation. The funding panel tracks the largest negative cumulative annual cash balance, assuming earlier positive cash is retained without interest. It can detect an early deficit even when total cash over the full horizon is positive.
These limits define the calculation. They are part of interpreting the output, especially for a fund with unusual cash flows or tax treatment.
Defaults and recoveries are constant assumptions, not a credit-cycle forecast. There is no sequence of clusters, delayed workouts or changing asset yields. Incentive outcomes under a variable path can differ because annual positive performance can be charged without refunding prior fees.
One asset rate, default fraction and recovery fraction describe the book. The model omits concentration, maturity, duration, floating-rate resets, covenants, security enforcement and position-specific recovery. A single blended number tells you little about the quality of a loan portfolio.
The four examples are hypothetical. Their labels describe the leverage, loss or accrual assumptions used, not a real vintage or what typical senior or junior lending looks like. Change several inputs together only when the comparison is intended to include all those changes.
Recovery is an immediate percentage used to calculate an annual reserve. The model does not price delays, collection costs, nonaccrual, lost interest during a workout or a defaulted asset’s recovery path. That is a material simplification. In practice recoveries take time and cost money.
A single ordinary-rate assumption applies to the calculated tax base. Actual treatment may include exemptions, capital items, market discount, allocation rules and limits on deductions. The tool does not calculate state apportionment, NIIT thresholds, bad-debt qualification or business-interest limitations.
Distributions are held without reinvestment and uncollected accrual does not compound. Loss reserves reduce annual proceeds to keep scheduled exposure constant. The output excludes repayment of the commitment and collection of accrued interest at exit. So it cannot show ending wealth or the investment’s full-life IRR.
A positive after-tax yield is only a starting point. It does not tell you whether you are paid enough for the risk, whether you can get your money out or whether the investment is legally suitable for you. Negative net cash can require money beyond the original commitment, and the annual schedule can miss a deficit within a year. Compare feasible funding plans and the actual governing documents.
Each example reserves $10 million for eight years, applies a 45% rate and assumes no current fee or loss deduction. Debt interest is assumed deductible. The unlevered and higher-loss examples use 95% target deployment over three years, 4% on outside cash, zero noncash accrual and zero feeder charge. The simplified 5.50% comparator is fully deployed from year one, with no leverage, fees or defaults; it is not a market quote or a risk-matched public fund.
| Measure | Unlevered example | Higher-loss leveraged example | Simplified 5.50% comparator |
|---|---|---|---|
| Asset-rate assumption | 10.50% | 10.50% | 5.50% |
| Income on commitment | 9.40% | 18.13% | 5.50% |
| Borrowing cost | $0 | $4,655,000 | $0 |
| Fees across eight years | $1,063,875 | $1,862,000 | $0 |
| Economic loss reserve | $465,500 | $3,657,500 | $0 |
| Nominal yield after costs and losses | 7.49% | 5.41% | 5.50% |
| Modeled tax at 45% | $3,355,256 | $4,432,500 | $1,980,000 |
| Cumulative net cash | $2,637,869 | -$102,000 | $2,420,000 |
| Nominal after-tax yield | 3.30% | -0.13% | 3.02% |
| After-tax yield / asset rate | 31.40% | -1.21% | 55.00% |
The unlevered example assumes 10.50% asset income, 2% defaults, 65% recovery, 1.25% management on deployed equity, 0.25% fund expenses and a 12.5% incentive above a 7% commitment hurdle. Its modeled after-tax yield is 3.30%, versus 3.02% for the simplified comparator. That 27 basis point gap comes from these particular inputs; it does not prove that private credit earns a premium.
The higher-loss example instead assumes 5% defaults, 45% recovery, leverage of 1 at a 7% debt cost, 1.25% management on gross assets, 0.30% fund expenses and a 15% incentive above the same 7% hurdle. Its nominal after-tax yield is -0.13% and cumulative net cash is -$102,000. No incentive is charged. This illustration changes several assumptions and is not an estimate of a full credit cycle.
In the unlevered example, tax totals $3,355,256 and fees total $1,063,875. Here tax is the larger cost, but that may not hold for every private credit investment. Turning on the fee deduction assumption alone changes after-tax yield to 3.86%. Whether that deduction is available is a legal question outside the calculator.
These sources support the US tax distinctions discussed here. They say nothing about whether the hypothetical yields are realistic, and the calculator is not a tax-return calculation.
IRC section 1272 generally requires current inclusion of OID according to prescribed accrual rules, subject to exceptions and adjustments. It does not mean every instrument labeled PIK has identical treatment. This tool assumes all entered accrual is currently taxable without calculating daily portions, issue-price adjustments or acquisition premium. Read section 1272 and IRS Publication 550.
IRC section 67(h) disallows miscellaneous itemized deductions for taxable years beginning after 2017. Section 67(c) addresses indirect deductions through pass-through entities, with its terms and exceptions. A different business-expense analysis may apply on the facts. The fee toggle is not a determination of investor or trader status. Read section 67 and IRS Topic 429.
IRC section 702(b) generally determines the character of a partnership item as if realized directly from its source. So not every item from a credit investment is necessarily interest. Allocations need their own analysis under section 704. Read section 702 and the actual partnership reporting.
A modeled expected loss is not automatically a current deduction. IRC section 166 addresses bad debts, including different rules for nonbusiness debts. Debt-interest deductions can also be limited. IRS Form 8990 guidance and IRC section 163 provide the relevant starting points. The loss and interest toggles test assumptions without calculating qualification, limits or carryforwards.
Published by PPLI.com. Updated 17 September 2026. Model checks cover incentive bases, fee bases, deduction assumptions, cash deficits and input validation. One hundred no-incentive scenarios were independently checked using closed-form sums across the deployment schedule. These checks validate the stated arithmetic, not investment assumptions or legal treatment. See our editorial standards.
Read the Privacy Policy.
Send the page link and a nonconfidential description of the assumption or source you want to discuss. Sending a question through the website does not make us your advisers, and we cannot promise a reply by a particular date.
Ask about PPLIRead our Privacy Policy before submitting. Share only the information needed to describe your question; do not include medical records or account credentials.