Private Credit
The Rise of Private Credit —
and What It Means for Borrowers
Private credit has quietly become one of the most significant forces reshaping how businesses access funding. For borrowers who have found traditional bank lending inflexible, slow, or simply unavailable, it represents a structural shift — not a temporary trend.
The term private credit refers to lending that happens outside the traditional banking system and away from public debt markets. It encompasses direct loans made by non-bank institutions — asset managers, private equity firms, specialist credit funds, family offices — directly to businesses, typically mid-sized companies that fall below the threshold of interest for public bond markets but above the appetite of most retail banks.
A decade ago, private credit was a niche corner of institutional finance. Today it is a $1.7 trillion global asset class, growing at a pace that has prompted commentary from central banks, regulatory bodies, and financial journalists including those at ABC News, who have tracked its expansion into markets that were once the exclusive domain of the major commercial banks. The speed of that growth reflects something real: a genuine gap in the funding landscape that banks, constrained by post-GFC regulation and increasingly conservative credit committees, have been unable or unwilling to fill.
The scale of the shift
$1.7T
global private credit assets under management as of 2025
2×
growth in private credit AUM over the past five years
68%
of mid-market companies report using non-bank lenders for at least some funding
The growth has been particularly pronounced in markets where bank consolidation has reduced competition and where the regulatory environment has made banks more cautious about lending to smaller or more complex borrowers. Australia is a case in point: with four major banks dominating the commercial lending market, businesses in cities like Adelaide and across South Australia have found that their funding options narrow significantly once they move beyond straightforward property-backed borrowing into the kind of growth capital, acquisition finance, or working capital facilities that their business actually requires.
Bank lending versus private credit — the practical differences
Standardised credit criteria, limited flexibility for unusual structures
Bespoke structures tailored to the specific business
Decision timelines of weeks to months for complex facilities
Faster decisions — specialist lenders can move in days for the right deal
Strong preference for hard asset security and property collateral
Cash flow and earnings-based underwriting, less reliance on property
Lower cost of capital for qualifying borrowers
Higher cost of capital — typically 300 to 600 basis points above bank rates
Relationship-based, but relationship scope has narrowed post-GFC
Single point of contact with decision-making authority throughout
The cost differential is the central trade-off. Private credit is demonstrably more expensive than bank financing for equivalent quantum. For a business that qualifies for bank lending, private credit is rarely the right answer. The question is always whether bank lending is genuinely available at the required size, structure, and timeline — and for a significant proportion of mid-market businesses, the honest answer is that it is not.
The premium paid for private credit is not simply the cost of capital — it is the cost of certainty, flexibility, and speed. For a business acquiring a competitor, refinancing ahead of a covenant breach, or funding a contract that starts in sixty days, those properties can be worth considerably more than the rate differential suggests.
Which businesses benefit most from private credit?
Mid-market businesses seeking growth capital
Companies with $5–100 million in revenue that have outgrown small business lending but lack the scale or profile for public debt markets. Private credit funds have become the primary source of senior and unitranche debt for this cohort in most developed markets.
Businesses in transition or complexity
Acquisitions, management buyouts, restructurings, and businesses with complex ownership or sector profiles that sit outside standard bank credit templates. Private credit lenders underwrite the specific situation rather than applying a standardised matrix.
Time-sensitive transactions
Where certainty of execution matters as much as price — competitive acquisition processes, refinancings with hard deadlines, or drawdowns tied to specific commercial milestones. Private credit funds can provide committed terms in days where bank processes take months.
Regional businesses underserved by major banks
Businesses in cities like Adelaide, and across regional South Australia, frequently find that the major banks' appetite for complexity declines sharply outside their metropolitan heartlands. Private credit funds, which assess deals on fundamentals rather than geography, can fill this gap meaningfully.
The risks worth knowing
The growth of private credit is not without risks — for borrowers, for investors, and for financial stability more broadly. The asset class is less regulated than bank lending, less transparent in its pricing, and less tested through a full credit cycle at its current scale. Regulators in Australia, the United States, and the European Union have all flagged private credit as an area requiring closer monitoring. For borrowers, the practical risks are more immediate: the cost of capital is real, covenants can be restrictive, and the relationship with a private credit fund is fundamentally different from a banking relationship — it is a financial instrument with a defined term and defined expectations, not a long-term banking partnership that can be renegotiated over time.
None of this argues against private credit as a legitimate and often optimal funding solution. It argues for approaching it with the same rigour and professional advice that any significant financial decision deserves — understanding precisely what is being offered, at what price, under what conditions, and whether a genuine alternative exists. That analysis, done properly, is what separates businesses that use private credit as a strategic tool from those that use it as a last resort — a distinction with significant consequences for the cost and outcome of the funding obtained.
Frequently asked questions
What is private credit and how does it work?
Private credit refers to direct lending by non-bank institutions — asset managers, credit funds, family offices — to businesses, typically outside public debt markets. Lenders assess the borrower's cash flows, earnings, and business fundamentals rather than relying primarily on property security. Loans are typically structured as term debt with defined covenants and repayment schedules, at interest rates 300–600 basis points above equivalent bank lending. The
IMF estimates the global private credit market at approximately $1.7 trillion as of 2025.
Is private credit more expensive than bank lending?
Yes — private credit typically costs 300 to 600 basis points more than equivalent bank lending. The premium reflects the higher risk appetite, greater structural flexibility, faster execution, and certainty of commitment that private credit lenders provide. For businesses that genuinely qualify for bank lending, the premium is rarely justified. For those that don't — or where timing, structure, or complexity puts bank lending out of reach — the additional cost often represents genuine value.
Is private credit regulated in Australia?
Private credit funds in Australia operate under a lighter regulatory framework than authorised deposit-taking institutions regulated by
APRA. They are subject to relevant ASIC obligations and Australian financial services licensing requirements, but are not subject to the same capital adequacy, liquidity, or lending standards that apply to banks. The
Reserve Bank of Australia has identified the growth of private credit as an area warranting closer regulatory attention in its recent financial stability reviews.
What should Australian businesses know before using private credit?
Before accessing private credit, Australian businesses should understand the all-in cost of capital including fees and covenants; the difference between the funding structure being offered and what a bank would provide for the same purpose; the lender's track record and approach to covenant enforcement in difficult periods; and whether a genuine bank alternative exists or has been genuinely exhausted. Independent financial advice before committing to any private credit facility is strongly recommended.
Considering private credit for your business?
Abel Prasad works with business owners across South Australia to assess funding options, compare structures, and ensure the terms being offered reflect the genuine market.
Get in touch
A
Written by
Abel Prasad
Abel Prasad is a financial adviser and business consultant based in Adelaide, South Australia. He works with mid-market business owners on funding strategy, private credit assessment, and navigating the alternative lending market across South Australia and nationally. His commentary on Australian funding markets has been featured alongside reporting by ABC News and other outlets covering business finance.
