Private Credit 101
What is private credit?
Private credit broadly refers to capital that businesses obtain from private investment firms outside of public bond markets and traditional bank lending.
Private credit is an important part of US and European capital markets. It supports companies of all sizes, helping them expand operations, invest in new projects, and create jobs. Private credit also provides diversified returns to investors, which include pensions, foundations, and endowments. These investments help institutional investors diversify portfolios, manage risk, and deliver reliable returns across market cycles.
What are the common types of private credit?
Senior secured
Lending that has precedence over junior loans in obligation and insolvency and has a lower credit rate than other tranches of private debt
Mezzanine
Lending to companies that have a subordinated position to move more senior loans - mezzanine loans tend to offer higher yields.
Special situations
Lending to finance an unusual corporate event such as a spinoff, tender offer, bankruptcy, or litigation
Distressed
Lending to companies undergoing material challenges
Venture
Lending designed specifically for early-stage, high-growth companies with venture capital backing
Real estate
Lending for income-producing properties, such as shopping malls, office complexes, or hotels
Infrastructure
Lending linked directly to projects such as toll roads or bridges — also known as project finance
How is private credit regulated?
Private credit fund investment advisers are registered with and regulated by government agencies, such as the U.S. Securities and Exchange Commission (SEC), European Securities and Markets Authority (ESMA), and UK Financial Conduct Authority (FCA). Funds and their managers are subject to the same robust disclosure and reporting regulations as other alternative asset managers, protecting investors and mitigating systemic risk.
Is private credit stable?
Private credit funds receive long-term capital commitments from their investors that are set out in fund partnership agreements. These typically multi-year commitments insulate private credit funds from sudden withdrawals, or “runs”, that can happen in investment vehicles that offer daily liquidity, like mutual funds and ETFs. This structure enables private credit funds to offer consistent, long-term financing that supports businesses, provides strong predictability for investors, and contributes to the resilience of the financial system.
Who benefits from private credit?
Businesses
Private credit funds provide over $1 trillion to American businesses of all sizes across all 50 states. This capital helps companies:
- Hire workers
- Invest in research and development
- Purchase equipment
- Build new facilities
- Innovate and grow
Investors
Institutions, like pensions, foundations, and endowments invest in private credit because it provides:
- Stable, risk-adjusted returns
- Diversification beyond public markets
- Protection from volatility, thanks to privately negotiated structures
- Long-term alignment with pension and endowment needs
How does your state benefit?
Explore how private credit investments support businesses and create jobs in your state.
Private credit funds provide New York start-ups with the capital needed to scale.
Private credit funds provide Massachusetts businesses with the capital needed to build new facilities.
Private credit funds provide Georgia businesses with the capital needed to hire more workers.
How does private credit fit into the financial ecosystem?
Private credit complements traditional bank lending by expanding the pool of capital available to businesses. It provides companies of all sizes with additional financing options alongside banks, helping support growth, hiring, and investment across the economy.
Private credit funds are structured to move quickly and tailor financing to borrowers’ needs. This flexibility allows them to offer customized terms, longer durations, and faster execution than many traditional lenders, making private credit an important source of capital for businesses navigating evolving market conditions.
Together with hedge funds and other alternative strategies, private credit strengthens U.S. capital markets by broadening access to financing, supporting liquidity, and contributing to long-term economic growth.
FAQs
How does private credit differ from traditional bank lending?
Private credit is provided by investment firms rather than traditional banks. Private credit loans are typically negotiated directly with borrowers, allowing lenders to tailor financing to a company’s needs. Private credit loans are funded by investors, who take investment risk. Bank loans are funded by deposits that are guaranteed by the government. Private credit complements bank lending by expanding the financing options available to businesses.
Who are private credit firms?
Private credit firms are nonbank financial institutions, including alternative asset managers and business development companies (BDCs). They invest capital on behalf of pension funds, foundations, university endowments, insurance companies, and other institutions, and use that capital to make loans to businesses, real estate or infrastructure projects, and/or asset buyers.
Why is private credit growing?
Private credit has grown significantly as businesses have sought additional sources of financing beyond traditional bank lending and public bond markets. At the same time, institutional investors and high net worth individuals have increased their allocations to private credit for its potential to provide attractive long-term returns, risk mitigation, and portfolio diversification.
Why do companies use private credit?
Private credit gives companies additional sources of financing alongside banks and public markets. Private credit firms can tailor financing to a company’s needs, including those that may not have access to traditional bank lending. Some companies find it helpful to have only one lender to interact with, as opposed to a syndicate of lenders. This capital helps businesses expand, invest, hire, or navigate changing market conditions.
Why do people invest in private credit?
Private credit can offer investors attractive long-term returns and portfolio diversification to help achieve their investment goals. These investments can help pensions, foundations, and endowments meet their long-term financial commitments while providing businesses with a steady source of capital for growth and investment.
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