Private credit has expanded into a $1.5 trillion to $2 trillion market under the Financial Stability Board’s assessment of end-2024 lending, giving companies another way to finance acquisitions, refinance debt and fund operations. Borrowers can obtain financing tailored to their businesses, but often pay more for that flexibility and remain exposed to lenders’ willingness to provide fresh money when loans mature.
The FSB’s May 2026 report uses a relatively narrow definition centered on privately negotiated nonbank lending to midsized companies. A March 2025 analysis by the Bank for International Settlements put private-credit fund assets under management above $2.5 trillion globally. Different coverage and measurement mean the figures cannot be read as a growth comparison.
Private-credit funds raise money from investors such as pension funds and insurers, then lend it to businesses. The loan is negotiated privately with one lender or a small group. Private equity, by comparison, involves buying an ownership stake, although private-equity-backed companies are frequent borrowers from private-credit funds.
Companies pay for speed and negotiated terms
A company buying a competitor may need financing on a firm timetable. Another may want to replace existing debt with a loan whose repayment conditions fit its cash generation. A private lender can assess the business directly and negotiate a package around those requirements.
Federal Reserve staff research describes borrowers’ willingness to pay a premium for faster execution, funding certainty and customized terms. Some borrowers have debt levels or other financial characteristics that make banks less willing to lend.
Private lenders typically hold loans until repayment or refinancing because there is little trading in them. That gives the borrower a continuing relationship with the lender. A broadly syndicated loan, by contrast, is arranged for a group of lenders, with portions commonly distributed to other institutions.
Flexibility can carry restrictions. The Fed notes that private-credit contracts may include substantial charges for early repayment or provisions giving the lender a say in company oversight. Covenants, the conditions a borrower must meet under its agreement, can limit financial decisions or require intervention when performance deteriorates.
The interest bill also needs attention. Private-credit loans commonly have floating rates, meaning the rate moves with a benchmark. Higher benchmark rates can absorb cash that management had expected to spend on hiring, equipment or expansion.
Banks still finance part of the lending
Private credit grew partly because banks became more selective after the global financial crisis. BIS researchers found a larger private-credit presence in countries with less efficient banking systems and, to some extent, tighter bank regulation. These relationships help explain its expansion without establishing that regulation was the sole cause.
Banks also lend to private-credit vehicles. A May 2025 Federal Reserve staff study found that commitments from the largest US banks rose from about $8 billion in the first quarter of 2013 to around $95 billion in the fourth quarter of 2024.
Of the latter amount, $56 billion had been drawn. The remaining commitment was available funding, not money already lent. Much of the financing took the form of revolving credit lines, which allow a fund to borrow, repay and borrow again within an agreed limit.
A business borrowing from a private fund may consequently remain indirectly connected to bank financing. Those links also give banks exposure to the funds’ performance, even when they have not made the underlying corporate loan themselves.
Refinancing and cash payments expose the pressure points
The FSB identified higher leverage among private-credit borrowers relative to the broadly syndicated loan market and increased use of payment-in-kind interest. Known as PIK, this allows interest to be added to debt instead of paid immediately in cash. It eases the current cash burden but increases the amount owed.
A company’s repayment capacity depends on its own finances. Our earlier coverage of differences in debt and cash generation within the same industry explains why sector labels alone give an incomplete picture.
Investors face a separate measurement problem. The International Monetary Fund has warned that infrequently traded loans rely on estimated valuations, which can respond slowly to worsening conditions. Many funds lock up investor money for years, reducing pressure to sell those loans quickly.
Products offering periodic withdrawals face different demands. In its July 2026 Financial Stability Report, the Bank of England said several US retail-facing private-credit funds had experienced elevated redemption requests, with some limiting withdrawals under their existing arrangements. It said the effects on UK financial stability had so far been limited.
The corporate consequence of sustained lender stress would be less available credit or more expensive refinancing. A negotiated loan can give management room to complete an acquisition or fund growth. When that loan matures, the business still needs enough cash to repay it or a lender prepared to finance the remaining debt.
