April 15, 2025BlogCommissioned Report
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One-pager: Benefits of private credit explained
Providing capital to American businesses
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Private credit is an asset class that focuses on nonbank lending, including to small- and mid-sized companies that need capital.
Post-global financial crisis, private credit helped stabilize the economy by filling a significant gap in the U.S. credit market.
Private credit funds are a crucial source of capital to small and mid-sized companies that would otherwise not have access to the capital they need to grow, fund research and development, and hire new employees.
Private credit serves as a stabilizing force for the U.S. economy. It aids businesses in all market environments, while other financial institutions tend to withdraw financing during periods of stress—such as the onset of the COVID-19 pandemic or during the GFC
Private credit is a market stabilizer. Taxpayers are not on the hook.
Private credit providers are not subject to liquidity risk. Credit funds receive capital from sophisticated investors who commit their capital to the funds for multi-year holding periods. The long-term holding periods prevent runs on a fund and provide stability.
Private credit funds are not implicitly or explicitly backstopped by the federal government. Therefore, taxpayers are not liable in times of stress.
Private credit presents no risk of contagion to other funds or the economy. If a private credit fund fails, the losses are borne by that specific fund’s manager and investors and do not impact other funds or their investments. The failure is insulated from, and will not ripple across, the broader financial system.
A 2020 Government Accountability Office report found that private funds’ lending activities have not threatened financial stability.1 Private credit default rates are generally limited due to the strong debt structure, documentation, and underwriting that are adequately protective of lenders.2
References
1. “Financial Stability,” Government Accountability Office, 2020.
2. “The Role of Private Credit in U.S. Capital Markets,” Proskauer, 2022.
