Why are Unity’s Double-Digit IRR deals credible?
Updated: Aug 22, 2025
Over the coming weeks, we will be answering some of the most relevant and frequently asked questions that we receive at Unity. We encourage everyone to actively share your questions with us. We will do our best to answer all of them.
We kick things off with a great question that one of our investors recently asked: why are double‑digit IRR private credit deals credible if liquidity is 12‑15 months out?
Our thoughts: If we take a step back, the UST10 yield is 4.5%. The U.S. mortgage rate is between 7-9%. Short-term bridge loans for sizable real estate projects (>$10mm) are closer to 13-15%. Credit card balances compound at 25-30%. MCA loans, payday loans, and buy-now-pay-later loans are between 50-100%. In the context of the U.S. yield curve, our rate of 15-20% IRR is quite benign. We probably sit between the second and third quartile of the yield curve, because the backend of the yield curve is always steep.
SMEs essentially have 4 funding options:
internal cashflow,
raise equity from venture funds (who themselves have pulled back from making new investments in the current high interest rate environment),
banks, and
non-bank lenders.
With 2 out of the 4 funding options scaled back, non-bank lenders have picked up a lot of the slack. Merchant cash advance (MCA) lenders can charge up to 50-100% IRR for SME loans; however, MCA loans are typically smaller in size and not secured against collateral. Many of our borrowers come to us because they want to refinance their high-priced MCA loans or financing vehicles. Some come to us because their venture funding is 12-18 months away, and they need a bridge (while seeking non-dilutive capital). Some come to us because they need financing immediately and do not care about a few more points of interest.
Because the mandates for different pools of capital are different, the market is highly inefficient, thus providing us with ample opportunities for short-term financing. Given the nature of expenses, payroll, and loan repayments is inflexible, we can provide capital quickly if the borrower qualifies. That capital is usually the difference between growth and bankruptcy for a corporation. Corporations do not care if they have to pay an extra 300-400bps annualized if they can save their business. Because our loans are short-term, they can always use our financing to buy time so that they can secure other sources of capital.
