What is private credit?

Private credit is debt financing provided by non-bank lenders — including private credit funds, business development companies (BDCs), insurance companies, and family offices — directly to companies and projects. It is held off public markets, with terms negotiated bilaterally rather than syndicated.

How is private credit different from a bank loan?

Private credit lenders are not deposit-taking institutions and are not subject to the same capital requirements as banks. They typically offer faster underwriting, more flexible covenants, and willingness to lend to borrowers banks decline — in exchange for higher pricing (typically 200–600 basis points over comparable bank rates).

What types of private credit exist?

The main categories are direct lending (senior secured loans to mid-market companies), mezzanine (subordinated debt with equity-like upside), distressed debt (loans to troubled companies), specialty finance (asset-backed lending against equipment, receivables, real estate), and venture debt (loans to VC-backed companies).

Who uses private credit?

Private credit serves middle-market operating companies, private-equity-backed portfolio companies, real estate sponsors, infrastructure developers, and special-situation borrowers. Borrowers who don't fit a bank's standard credit box — too small, too fast, too irregular cash flow, or in transition — are common candidates.

How big is the private credit market?

The global private credit market reached approximately $1.7 trillion in assets under management by 2024, up from roughly $250 billion in 2010, according to Preqin and Bloomberg estimates. Direct lending is the largest category, comprising about 45% of the market.

What rates does private credit charge?

Pricing varies widely by product. Direct lending senior loans typically price at SOFR + 500–700 bps. Mezzanine debt often runs 11–14% all-in. Specialty finance and asset-backed lending can range from 8% to 18% depending on collateral. Distressed and rescue financing is priced opportunistically.

Capital Markets · Guide

Private credit, explained

Published April 25, 2026 · Reading time ~6 minutes · By Magnara desk

TL;DR Private credit is debt provided by non-bank lenders directly to operating companies and projects, held off public markets. It now manages roughly $1.7 trillion globally. It serves borrowers who need faster, more flexible, or more bespoke capital than commercial banks provide — at prices typically 200–600 basis points above comparable bank loans.

What private credit is

Private credit is debt financing provided by non-bank institutions — private credit funds, business development companies (BDCs), insurance companies, family offices, and specialty finance firms — directly to companies and projects. The loans are not syndicated, not publicly traded, and not registered with the SEC. Terms are negotiated bilaterally between the lender and borrower.

Functionally, private credit fills two gaps: borrowers who need capital banks won't provide, and investors looking for fixed-income returns above what public bond markets offer. The asset class has grown roughly 7x since 2010 because both sides of that equation expanded.

Private credit vs bank lending

The most important distinction is regulatory: banks take deposits, so they're capital-constrained, examined regularly, and lending standards are codified. Private credit funds raise from institutional investors with locked-up capital — they aren't constrained the same way.

Dimension	Bank loan	Private credit
Speed	30–90+ days	2–6 weeks typical
Pricing	SOFR + 200–400 bps	SOFR + 500–700+ bps
Flexibility	Standardized covenants	Custom-negotiated structure
Borrower fit	Stable cash flow, traditional	Growth, transition, bespoke
Hold period	Often syndicated/sold	Held to maturity

The main types of private credit

Direct lending — Senior secured first-lien loans to middle-market companies (typically $25M–$1B EBITDA). Largest category, ~45% of the market.
Mezzanine — Subordinated debt with equity warrants or PIK interest. Sits between senior debt and equity in the capital stack. Pricing typically 11–14% all-in.
Distressed debt — Loans to companies in financial trouble or default. Higher risk, opportunistic pricing, often with conversion features.
Specialty finance — Asset-backed lending: equipment, receivables, royalties, real estate, litigation finance. Underwritten on collateral rather than enterprise value.
Venture debt — Term loans to venture-backed companies, typically alongside an equity round. Helps extend runway without diluting equity.
Real estate debt — Bridge, mezzanine, and stretch senior loans on commercial real estate. A separate sub-asset class from corporate private credit.

Who actually uses private credit

The borrower types we see most often:

PE-backed portfolio companies. Sponsors prefer private credit for acquisition financing because of speed, flexibility on covenants, and the ability to add on later draws.
Founder-owned mid-market companies. Growth, recapitalization, or partial owner liquidity events.
Real estate sponsors. Bridge financing, value-add capex, construction.
Companies in transition. Recently restructured, post-bankruptcy, in carve-out, or with non-traditional cash-flow profiles banks won't underwrite.
Specialty borrowers. Healthcare practices, technology companies, energy projects with bespoke needs.

How rates work in private credit

Private credit pricing has three parts: a floating base (usually SOFR), a credit spread negotiated based on borrower risk, and fees (origination, commitment, exit). Original-issue discount (OID) is also common — the loan is funded slightly below par to lift the yield.

For a typical mid-market direct lending senior loan in 2025: SOFR (around 5.3%) + 550 bps spread + 2% OID + 50 bps commitment fee on undrawn = roughly 11–12% all-in yield to the lender.

Why the market grew so fast

Three structural shifts drove the 2010–2024 expansion from ~$250B to ~$1.7T:

Post-2008 bank retreat. Dodd-Frank and Basel III tightened bank capital requirements. Banks pulled back from middle-market and leveraged lending. Private credit filled the void.
Institutional demand for yield. Pension funds, endowments, and insurance companies needed yield in a low-rate environment. Direct lending offered 8–12% returns with senior-secured collateral protection.
Sponsor adoption. Private equity firms found private credit faster and more flexible for acquisition financing than syndicated bank deals.

Even as rates rose in 2022–2024, the asset class kept growing — borrowers still needed capital, and the floating-rate structure of most private credit kept yields attractive to investors.

Trade-offs and risks

Higher cost. Borrowers pay 200–600 bps more than they would at a bank for the same theoretical credit risk.
Less liquidity. Loans are illiquid; refinancing or selling typically requires lender consent.
Concentration. Borrowers often have one or a small number of lenders rather than a diversified syndicate — making restructuring conversations more direct, but also higher-stakes.
Disclosure exposure. Bilateral negotiation means more financial information is shared with the lender than under a public bond.

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