Private credit
Reviewed by Jack Shrimpton, Senior Finance Content and Production Manager at xUnlocked · Last updated August 2026 Private credit is debt financing provided mainly by non-bank lenders through privately negotiated instruments that are not publicly traded. It most commonly refers to direct loans made to companies by private credit funds, asset managers and institutional investors, rather than debt issued through public bond markets or distributed widely through syndicated loans. There is no universally accepted definition. Some sources use private credit narrowly to mean direct corporate lending, while others include asset-based finance, fund finance, distressed credit and other private debt strategies. Estimates therefore vary, but the broader global private debt market had grown to more than $2.5 trillion in assets under management by 2025. Using a narrower definition focused mainly on non-bank direct lending, the Financial Stability Board estimated the market at between $1.5 trillion and $2 trillion at the end of 2024. Historically funded mainly by institutional investors such as pension funds and insurers, private credit has primarily served mid-sized businesses but increasingly finances larger companies. It is also becoming more accessible to individual investors through evergreen and semi-liquid fund structures.
What are the main types of private credit?
- Direct lending. Privately negotiated loans made directly to companies by one lender or a small group. They are often senior secured and may fund expansion, refinancing or private-equity-backed acquisitions.
- Asset-based and specialty finance. Lending secured against assets or cash flows, such as equipment, property, receivables, consumer loans or royalties.
- Mezzanine and subordinated debt. Debt that ranks below senior borrowing but ahead of equity. It carries greater risk and may include warrants or other forms of equity participation.
- Distressed and special-situations credit. Financing for companies in financial difficulty, or the purchase of their existing debt at a discount. Returns depend heavily on restructuring outcomes and recovery values.
- Fund finance. Lending to investment funds, secured against investor commitments, portfolio assets or expected cash flows. This includes subscription facilities and financing based on a fund’s net asset value.
Why has private credit grown so quickly?
What are the main challenges and risks in private credit?
- Borrower credit and leverage risk. Private credit borrowers are often smaller, more highly leveraged or less able to access conventional markets. Floating-rate loans can also become harder to service when interest rates rise.
- Untested at its current scale. The market showed some resilience during the COVID-19 pandemic but has not experienced a prolonged downturn at its current size and level of interconnectedness.
- Valuation and liquidity. Private loans trade infrequently, so valuations rely more heavily on models and periodic assessments than observable market prices. Semi-liquid funds may also offer investors more frequent redemptions than the underlying loans can easily support.
- Interconnectedness. Private credit funds are linked to banks, insurers and private equity firms through financing arrangements, investments and shared borrowers. Stress in one part of the system could therefore affect others.
- Data and monitoring gaps. Reporting is less harmonised and comprehensive than in banking and public markets, making it harder to assess leverage, concentrations and risks across the sector.
