What Exactly Is Private Credit?
Private credit, in simple terms, is debt financing provided by non-bank lenders. Think of specialised investment funds, asset managers, and other financial institutions lending directly to companies. These loans are not traded on public markets like bonds.
Instead, they are privately negotiated between the lender and the borrower. This corner of the financial world has boomed, growing into a multi-trillion dollar global market as more businesses seek flexible capital. It typically serves mid-sized companies that might be considered too small or complex for public debt markets, or too risky for conventional bank lending criteria.
Why Not Just Go to a Bank?
The rise of private credit is a direct response to a gap in the market. Since the 2008 financial crisis, banks have faced stricter regulations, making them more cautious about lending to smaller or more leveraged companies. Private credit funds have stepped into this space, offering a lifeline to businesses that struggle to secure traditional financing. For borrowers, the key advantages are speed, flexibility, and certainty. A private lender can often structure customised repayment schedules and covenants (loan conditions) tailored to a company's specific needs, a level of personalisation that large banks may not offer. This is especially valuable for companies undertaking acquisitions, complex refinancings, or rapid growth initiatives.
The View from India
The private credit market in India is also experiencing a significant surge. Once a niche area, it has become an essential part of the country's financing ecosystem. In the first half of 2026, domestic funds drove the market, accounting for 74% of the deal value as local players identified opportunities in refinancing and acquisition financing. Sectors like real estate, healthcare, and even food and beverage are attracting significant private credit investment. This growth is expanding the options available to Indian companies, creating a deeper and more diverse ecosystem that includes banks, the corporate bond market, and now a robust private credit market.
The Different Flavours of Funding
Private credit isn't a one-size-fits-all solution. It encompasses a variety of strategies. The most common is 'direct lending,' where a fund makes a loan directly to a company. Other forms include 'mezzanine debt,' which is a hybrid of debt and equity; 'distressed debt,' which involves lending to companies in financial trouble; and 'asset-based lending,' where loans are secured against specific company assets. This variety allows private credit to serve a wide range of corporate needs, from supporting a private equity-led buyout to funding a venture-backed startup.
What Are the Downsides?
This flexibility comes at a price. Private credit loans are typically more expensive than bank loans, with higher interest rates to compensate the lender for taking on more risk. The market is also far more opaque than public markets; since the deals are private, there's less publicly available data on pricing and terms, which can be a challenge. Another key factor is illiquidity. These loans are designed to be held until they mature, meaning there isn't an easy way to sell them off quickly if needed. For the borrowing company, this means being locked into a long-term financial relationship, while for the economy at large, some regulators worry about the risks building up in this less-transparent corner of finance.
