Is private credit unlocking a new approach to corporate financing?

Last year, private credit funds hit an estimated $1.7 trillion globally.¹ One projection predicts that by 2028, the market will nearly double—which is more than the current US leveraged loan market and high-yield market combined.² Anticipating a more deregulation-friendly administration, some CFOs may consider incorporating nonbank lenders into their corporate financing strategies.

While the phrase can be applied to several subsegments, private credit is a blanket term for a negotiated loan between a borrower and a private provider of debt. What makes these types of loans appealing to both borrowers and lenders? Lenders could be enticed by the possibility of healthier returns than those typically offered by more common fixed-income instruments, a function of underlying volatility or high leverage. Lenders’ direct relationship with borrowers may also make it easier to customize the terms of deals. On the other side, borrowers may expect quicker decisions, greater certainty of execution, and higher leverage than they would with traditional lending.

In the wake of 2008, with regulators requiring banks to de-risk their balance sheets, private credit stepped in to take on the kind of deals that might have otherwise been financed by conventional bank loans. But what was once mainly considered an instrument for distressed debt has now evolved to serve more creditworthy borrowers—and some CFOs are intrigued. The appeal of private credit funds may have less to do with the lender-CFO working relationship and more to do with flexibility, which comes in many forms.

For starters, there isn’t a one-size-fits-all structure. Private credit funds can work with borrowers directly to tailor the terms of a loan, depending on how much the borrower is seeking and the level of risk involved. Banks, however, have constraints on how creative they can get.

Private credit firms can also move quickly compared to banks. They don’t depend on sprawling investment committees whose approval can take more time, and private lenders are not regulated as entities. Any additional regulation will likely be imposed at the fund level rather than at the firm level.

Lastly, there’s an ever-evolving user experience—partially because private credit firms compete against one another. They want to position themselves as a better partner, which may mean extending a business borrower a longer runway to turn the fortunes of the business around.

Learn even more about why an increasing number of chief financial officers may be interested in exploring the private credit market by reading the full article.