How to Invest in Private Credit: Access Routes, Eligibility, and Diligence

Start with the lender

Every private credit investment ends in the same place: a loan to a business that needed money before it had it. A manufacturer buys inventory ahead of an order. An operator, often a founder, makes payroll while a contract pays out over months. The investor will never meet that borrower. What they are really buying is someone else's decision to lend. Choosing a fund means tying money to a particular team's judgment and incentives.

That is why we think the vehicle question, which comes first in every search, is the smaller one. The same kind of loan can sit inside a listed fund, a registered fund, or a private partnership. What changes is the terms around it, and the people deciding what gets lent, to whom, and on what conditions.

So this guide covers both halves: the routes in and who each is open to, then how to judge the people behind them. Sandbox's own funds are available only to qualified purchasers who are accredited investors. Readers new to the asset class should start with what private credit is.

The access routes, and who each is open to

Two questions sort every route: which vehicle holds the loans, and which eligibility test it applies. The loans can look alike across structures. The terms around them do not.

A few notes the table cannot hold:

• BDCs. A BDC is a closed-end fund that is not registered as an investment company but still carries many Investment Company Act protections, including rules on governance, recordkeeping, and conflicts of interest. Some focus on private credit [5]. At least 70 percent of total assets must be qualifying assets, mainly securities of private or thinly traded U.S. companies [7]. Listed shares can swing with the stock market in ways the loans underneath do not. A non-traded BDC files a Form N-2 registration statement and provides a prospectus [6]. A private BDC registers on Form 10, which is less detailed, and usually hands investors a private placement memorandum that is not required, is typically not reviewed by any regulator, and has no standard content rules [6].
• Interval funds are registered closed-end funds sold continuously at a price based on net asset value, and most do not trade on an exchange [10]. Because the shares are sold by registered prospectus rather than private placement, Regulation D's accredited-investor condition does not reach them. A full exit can take several repurchase cycles [10].
• Drawdown funds are limited partnerships. Investors make a binding commitment that the manager calls over an investment period, often on short notice. To avoid registering as an investment company, the fund typically relies on Section 3(c)(1), capped at 100 beneficial owners, or Section 3(c)(7), owned only by qualified purchasers [4].
• Separate accounts come with negotiated guidelines and a full view of every position. Pooled diversification goes away, and oversight, valuation review, and reporting fall to the investor.
• Liquidity terms on any private route are set by contract: lockups, repurchase caps and proration, notice periods, gates, suspension rights, and who can invoke them. They tend to bind hardest exactly when the most investors want out.

Eligibility in plain terms

Accredited investor. Under Regulation D, an individual qualifies with individual or joint net worth over $1,000,000, not counting the primary residence, or with individual income over $200,000 in each of the last two years ($300,000 jointly with a spouse or spousal equivalent) and a reasonable expectation of the same this year [1]. Entities qualify several ways, including those owning investments over $5,000,000 and family offices with assets under management over $5,000,000 [1].

Qualified purchaser. The Investment Company Act sets a higher bar: an individual owning at least $5,000,000 in investments, or a person investing on a discretionary basis, for its own account or for other qualified purchasers, that owns at least $25,000,000 in investments [2]. It counts investments as SEC rules define them, not net worth. The qualified purchaser standard decides which funds can accept an investor at all.

Verification, not self-certification. A Rule 506(c) offering can be advertised publicly, and the issuer must then take reasonable steps to verify that every buyer is accredited [3]. Under Rule 506(b), which allows no general solicitation, a self-certification questionnaire is customary.

These tests measure wealth. They say nothing about judgment. Clearing them gives an investor permission to buy, not a reason to. The harder question, whether a particular manager deserves the capital, is left to the investor.

How to judge a private credit manager

Most of the real work of investing in private credit happens here. Loan terms can be read and fees compared. What is harder to see is how a team decides. Sebastian J. Harris, Sandbox's founding partner, writes in Foundations: "Analysis is indispensable. It is not sufficient." Good diligence tests both the analysis and the judgment behind it, and a manager's judgment lives in its people and its relationships as much as in its models. The people questions an investor would put to a founder apply to a manager too.

• Where the loans come from. Does the manager originate loans through its own relationships with borrowers, or buy pieces of deals someone else arranged? Who says no, and how often? Relationships carry context a credit file does not. Buying loans another lender arranged means leaning on that lender's homework.
• Collateral and seniority. What secures each loan, where it ranks if the borrower fails, and how the security is perfected and monitored. Collateral can lose value too.
• What happens when a loan goes wrong. Workout is a different skill from origination. Ask who handles it, and what the team changed after its hardest loan. How a manager talks about a failure says more about its judgment than how it talks about a success.
• Leverage, at both levels. A BDC's borrowing is capped by statute at asset coverage of 200 percent, or 150 percent where certain approval conditions are met [8]. Private funds set limits by contract, so both the limit and how it is defined live in the fund documents. Leverage magnifies losses as well as income.
• Valuation and oversight. Private loans do not trade, so someone has to mark them. Ask who does it, how often, whether an independent valuation firm is involved, and how troubled loans are treated; marks rest on judgment and can lag events. Then ask who checks the work: auditor, administrator, custodian, counsel, and how independent each is. An SEC-registered adviser with custody of fund assets can satisfy the custody rule through an annual audit and delivery of audited financials within 120 days of fiscal year-end [11]. Advisers outside SEC registration are not bound by that rule, so whether an audit happens at all is worth asking.
• Fees and alignment. Whether the management fee is charged on committed capital, invested capital, or net asset value. Whether performance pay applies to income, gains, or both, and whether a hurdle, catch-up, or clawback applies. Which expenses the fund bears. The fee structure shows what a manager is paid to do, and how far its interests line up with the investor's.
• Track record, and the team behind it. Is the team that built the record the team running the fund? Is the strategy unchanged? Is performance shown net of fees? An SEC-registered adviser that advertises gross performance must show net with at least equal prominence [12]. A newer manager has a short record, so the questions about people and process carry more weight. So does the risk that the process has not yet been tested. Ask how the team handles disagreement and who has the final say. Foundations counts the kind of people a firm develops among the clearest measures of an institution.

A lender and an owner ask different questions, which is why credit diligence differs from private equity diligence.

The mechanics after committing

Subscription. Private funds are entered through subscription documents carrying eligibility, tax, and source-of-funds representations, alongside the partnership agreement. Under Rule 506(c), verification comes before subscription.

Capital calls. A drawdown fund calls committed capital in tranches on short notice. The partnership agreement sets what happens if an investor fails to fund a call, and those provisions are usually severe, so a commitment should match liquidity the investor can reliably reach.

Distributions. Credit strategies earn contractual interest, so distributions tend to be periodic rather than tied to an exit, when borrowers pay as agreed. A reinvestment feature keeps cash that would otherwise be paid out.

Tax reporting. A fund taxed as a partnership reports each investor's share on Schedule K-1. Its Form 1065 is due the 15th day of the third month after the tax year ends (March 15 for a calendar-year partnership) and can be extended on Form 7004 [13], so a K-1 can arrive after an investor's own filing deadline. A BDC that elects regulated investment company treatment reports distributions on Form 1099 instead.

What choosing a manager comes down to

Every route above ends in the same handoff. An investor's capital goes to people who will decide what to lend, to whom, and on what terms. Eligibility rules settle who may make that handoff. The structure settles how and when the money can come back. Neither says much about the quality of the decisions in between.

At Sandbox we treat financial performance as the test of a manager's judgment, as Foundations describes it. That puts the weight on the questions above: how loans are found, what happens when one fails, who marks the book and who checks the marks.

None of that removes the risks. Private loans can default. They are hard to sell. Their values are estimates. Fees reduce what an investor keeps. Two managers running the same strategy can make very different decisions with the same capital.

Frequently asked questions

Is accredited investor status required to invest in private credit?

Not on every route. Exchange-listed BDC shares can be bought by anyone [6]. Non-traded, retail-offered BDCs apply state suitability requirements [6]. Privately offered BDCs and private funds are generally sold to accredited investors [6][1], and Section 3(c)(7) funds only to qualified purchasers [2][4].

What should an investor look for in a private credit manager?

Where its loans come from, what secures them, how it handles loans that go wrong, how it uses leverage and values its book, how its fees line up with investors, and whether the people behind the track record are the people running the fund. Eligibility rules settle who may invest. They do not settle which manager deserves the capital.

What separates an interval fund from a non-traded BDC?

An interval fund is a registered closed-end fund that buys back shares on a fixed schedule of three, six, or twelve months, for no less than 5 and no more than 25 percent of shares outstanding [9]. A non-traded BDC is not a registered investment company and repurchases at its discretion, typically quarterly or monthly [6].

How does qualified purchaser status differ from accredited investor status?

They are different tests under different laws: accredited investor under the Securities Act [1], qualified purchaser under the Investment Company Act [2]. A buyer in a Section 3(c)(7) fund sold under Rule 506(c) must meet both. See qualified purchaser.

What does verification involve in a publicly advertised private offering?

Rule 506(c) requires reasonable steps to verify accredited status, not just the investor's word [3]. Listed methods include reviewing IRS income forms for the two most recent years, asset documentation dated within the prior three months plus a consumer report, or written confirmation from a broker-dealer, investment adviser, attorney, or certified public accountant [3].

How can a manager's claims be checked independently?

Form ADV, filed by registered and exempt reporting advisers, is public through the SEC's Investment Adviser Public Disclosure system. Form D filings and BDC reports are on EDGAR. Where an SEC-registered adviser shows gross performance, net must appear with at least equal prominence [12].

Sources

1. [1] SEC — 17 CFR 230.501, Regulation D definitions. https://www.ecfr.gov/current/title-17/chapter-II/part-230/subject-group-ECFR6e651a4c86c0174/section-230.501. Accessed 2026-08-12.
2. [2] U.S. GPO — 15 U.S.C. 80a-2(a)(51), qualified purchaser. https://www.govinfo.gov/content/pkg/USCODE-2023-title15/html/USCODE-2023-title15-chap2D-subchapI-sec80a-2.htm. Accessed 2026-08-12.
3. [3] SEC — 17 CFR 230.506, exemption for limited offers. https://www.ecfr.gov/current/title-17/chapter-II/part-230/subject-group-ECFR6e651a4c86c0174/section-230.506. Accessed 2026-08-12.
4. [4] U.S. GPO — 15 U.S.C. 80a-3(c), further exemptions. https://www.govinfo.gov/content/pkg/USCODE-2023-title15/html/USCODE-2023-title15-chap2D-subchapI-sec80a-3.htm. Accessed 2026-08-12.
5. [5] SEC — Publicly Traded Business Development Companies (BDCs): Investor Bulletin. https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/publicly-traded-business-development-companies-bdcs-investor-bulletin. Accessed 2026-08-12.
6. [6] SEC — Non-Publicly Traded Business Development Companies (BDCs): Investor Bulletin. https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/investor-bulletin-non-publicly-traded-business-development-companies-bdcs. Accessed 2026-08-12.
7. [7] U.S. GPO — 15 U.S.C. 80a-54, BDC assets. https://www.govinfo.gov/content/pkg/USCODE-2023-title15/html/USCODE-2023-title15-chap2D-subchapI-sec80a-54.htm. Accessed 2026-08-12.
8. [8] U.S. GPO — 15 U.S.C. 80a-60, capital structure. https://www.govinfo.gov/content/pkg/USCODE-2023-title15/html/USCODE-2023-title15-chap2D-subchapI-sec80a-60.htm. Accessed 2026-08-12.
9. [9] SEC — 17 CFR 270.23c-3, closed-end repurchase offers. https://www.ecfr.gov/current/title-17/chapter-II/part-270/section-270.23c-3. Accessed 2026-08-12.
10. [10] SEC — Investor Bulletin: Interval Funds. https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/investor-bulletin-interval-funds. Accessed 2026-08-12.
11. [11] SEC — 17 CFR 275.206(4)-2, custody rule. https://www.ecfr.gov/current/title-17/chapter-II/part-275/section-275.206(4)-2. Accessed 2026-08-12.
12. [12] SEC — 17 CFR 275.206(4)-1, investment adviser marketing. https://www.ecfr.gov/current/title-17/chapter-II/part-275/section-275.206(4)-1. Accessed 2026-08-12.
13. [13] IRS — Instructions for Form 1065, When To File. https://www.irs.gov/instructions/i1065. Accessed 2026-08-12.