A huge boom in the global private credit market is changing how corporate finance operates. Once a small market, private credit has grown large due to the involvement of asset managers, pension funds and private equity firms and now supplies important funding to businesses globally, particularly in mid-market and leveraged buyouts.
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A $2 Trillion Dollar Market and Growing
Preqin and PitchBook reveal that private credit assets currently exceed $1.7 trillion and should reach $2.3 trillion by the year 2027. While the U.S. leads with a large market share, Europe and Asia are growing rapidly because of helpful rules and more demand for income from fixed-income products.
Reasons for the private credit boom include tougher bank rules after 2008, lowered interest rates on bonds and a search for more returns by institutional investors. Now that banks are avoiding riskier types of lending, non-bank lenders are providing fast services, individualised deals and more flexibility.
Why Private Credit Is Growing in Popularity
There are many good reasons why the middle-market prefers private credit. Among them are faster access to funding, less intense covenant conditions and flexible financing products not found in standard banks. During uncertain times and cautious policies, private credit offers a steady, personalised choice.
Private credit is now seen as a viable option for both healthy and troubled firms, according to McKinsey & Company. Now, many companies pick SPACs for M&A funding, additional capital and debt refinancing to stay out of the scrutiny found in public markets.
Transforming the Tasks Performed by Traditional Finance
As private credit grows, businesses are reconsidering how they organise their capital. Since non-bank lenders are more involved, CFOs and treasurers have to update how they control cash flow, risk and stakeholder ties. As a result of this shift, many bilateral private credit deals may be easier to hide, leading to less transparency and stricter governance.
In addition, the attention of regulators is increasing. The BIS and IMF point out that more oversight is needed since private credit is becoming more significant and often less clear.
A Big Transformation in Corporate Finance
The explosion in private credit is bringing major changes to global finance. With changing practices in traditional banking, non-bank lenders are becoming increasingly important lenders for the current corporate sector. Now, businesses and investors must learn about and manage these new developments.
