Private Credit Expansion: How Non-Bank Lending Is Reshaping Corporate Refinancing in 2025

By 2025, private credit isn’t just an alternative anymore-it’s a core part of how companies get funded. While banks tightened their belts after the 2008 crisis, a new wave of lenders stepped in: private equity firms, asset managers, and specialized credit funds offering loans that banks simply wouldn’t touch. Today, this $1.5 trillion market is the go-to source for middle-market companies needing fast, flexible financing. And it’s not slowing down.

Why Companies Are Turning Away from Banks

Big banks used to be the default choice for corporate loans. But in 2025, that’s changing. Companies with enterprise values between $50 million and $1 billion are finding it harder to get deals done through traditional channels. Syndicated bank loans take 60 to 90 days to close. Private credit deals? Often done in 30 to 45 days. That speed matters when you’re buying a competitor, refinancing a bloated balance sheet, or funding a growth push before a market window slams shut.

The real draw isn’t just speed-it’s flexibility. Private lenders don’t need a committee vote to approve a loan. They can structure deals with payment-in-kind toggles, equity kickers, or covenant-light terms that banks would never touch. For a company with irregular cash flow or a complex capital structure, that’s a game-changer. According to Proskauer’s 2025 survey, 83% of borrowers picked private credit because they wanted certainty. No last-minute pullouts. No renegotiations. Just a signed agreement and the cash.

The Four Main Types of Private Credit

Not all private credit is the same. It’s broken into four main strategies, each serving a different kind of borrower:

• Direct lending makes up about 60% of the market-$900 billion as of early 2024. These are senior secured loans to middle-market companies, usually with 3- to 7-year terms. Think of it as a bank loan with fewer rules and faster approval.
• Asset-based lending ($200 billion) backs loans with collateral like inventory, receivables, or equipment. Lenders advance 70-85% of the asset’s value. It’s popular with manufacturers and distributors who need working capital but don’t qualify for unsecured debt.
• Distressed debt and special situations (15% of the market) targets companies in trouble. These lenders buy debt at a discount, then work with management to restructure. Returns can hit 12-15%, but defaults are higher. This isn’t for the faint of heart.
• Venture and growth lending ($120 billion) is the fastest-growing slice. It funds pre-IPO tech companies that don’t have profits yet but have strong revenue. Repayments are tied to sales, not EBITDA. This is how startups avoid giving up too much equity too early.

Who’s Getting Funded-and Who’s Not

Private credit thrives where traditional lenders fear to tread. Management buyouts? 65% of financing now comes from private credit, according to KKR. Refinancing a company with multiple layers of debt? Private lenders are the only ones willing to untangle it. Companies with non-traditional cash flows-like software-as-a-service firms with recurring revenue but high upfront costs-are finding new life through revenue-based financing.

But here’s the catch: private credit doesn’t help everyone. If you’re a blue-chip company with investment-grade credit, you’re better off in the public bond market. The all-in yields on private loans are typically 300 to 500 basis points higher than syndicated loans. Why pay more when you can get cheaper money elsewhere? Private credit isn’t about being cheaper-it’s about being available when no one else will lend.

Investor Returns and Risks

For investors, private credit has been a standout performer. In 2024, median net returns hit 9.2%, according to Preqin. That’s well above public high-yield bonds, which averaged under 6%. The floating-rate nature of most private loans helped, too. As interest rates rose, so did the income stream.

But returns aren’t risk-free. Default rates are low-2.8% in Q3 2024, per S&P Global-but they’re climbing. Morgan Stanley projects defaults could hit 4.5% by the end of 2025 as higher borrowing costs squeeze companies. Sectors like technology are seeing higher defaults (4.1%) compared to healthcare (1.8%).

Liquidity is another big issue. Most private credit funds lock up your money for 5 to 7 years. There are no daily redemptions. Even if your fund has a “liquidity window,” it doesn’t mean you can get out easily. One institutional investor on Reddit reported struggling to exit during Q1 2025’s regional banking turmoil, despite having contractual liquidity rights.

And then there are fees. The classic “2 and 20” model-2% management fee, 20% performance fee-is still common. Add in annual commitment fees of 0.5-1.0%, and the cost adds up. Smaller funds often lack the infrastructure to provide detailed reporting, making it hard to track performance.

How Big Investors Are Playing the Game

Institutional investors are doubling down. CalPERS reported 10.3% net returns from private credit in 2024, with 25% less volatility than their public credit holdings. Eighty-seven percent of large pension plans now allocate to private credit, up from 62% in 2020. Corporate pension funds have raised their allocations from 3.1% to 7.8% of portfolios. Insurance companies are following suit, increasing their exposure from 1.8% to 5.2%.

The way they invest is changing too. Most go through commingled funds (75% of allocations), but separately managed accounts and co-investments are growing. BlackRock’s $12.5 billion acquisition of HPS Investment Partners in April 2025 signaled that even the giants are betting big on consolidation. KKR’s $4.2 billion direct lending fund-largest ever-shows demand is still strong.

But getting started isn’t easy. Large institutions need 6 to 12 months to build the right team and systems. They need credit analysts who understand illiquid assets, legal experts who can decode complex loan agreements, and valuation specialists who can price loans with no public market data. Most funds only report quarterly, and the quality of those reports varies wildly. Big players like Blackstone and Ares provide detailed portfolio company metrics. Smaller managers? Often just a summary.

The Future: Growth, Saturation, or Regulation?

The market is growing fast. Morgan Stanley projects it will hit $2.6 trillion by 2029. BlackRock sees a $25 trillion opportunity ahead. But there are warning signs. McKinsey noted that banks’ share of middle-market lending actually increased in 2024. Some banks are taking on more risk again, especially in lower-rated credits, which could eat into private credit’s market share.

Regulators are watching too. The SEC is pushing for better liquidity management and valuation standards. The European Union is tightening reporting rules under the AIFMD. These changes will raise costs and push out smaller players. The top 10 managers now control 35% of the market, up from 28% in 2020. The rest are struggling to keep up.

The real shift? Private credit is moving from a niche to a core asset class. CalPERS expects institutional allocations to hit 8-10% by 2027. Companies aren’t just using it for emergencies anymore-they’re building their capital strategies around it.

What This Means for Businesses in 2025

If you’re a mid-sized company looking to refinance, acquire, or grow, private credit is likely your best option. But don’t just pick the first lender who says yes. Ask about:

• How fast can you close?
• What’s the all-in cost, including fees?
• Are there equity kickers or warrants?
• What happens if you miss a payment?
• Can you prepay without penalty?

And remember: private credit isn’t a magic solution. It’s a tool. Use it when you need speed, flexibility, or certainty. Avoid it if you can get cheaper, liquid financing elsewhere.