On top of everything else pummeling consumers right now — spiking gas prices, soaring grocery bills, an uncertain job market — there’s a wild card lurking in a shadowy corner of corporate finance that could pile on even more pain.
The wild card is private credit, an umbrella term for the borrowing and lending ecosystem that operates outside of traditional banking.
Lately, skittish investors in private credit have been asking for their money back, and their worries have quickly spread to the rest of Wall Street: Did private lenders, tempted by ever fatter profits, get a little lazy in vetting borrowers? Is AI adoption about to torpedo the smaller software companies that rely heavily on private loans, sparking a wave of defaults?
It’s virtually impossible to answer those questions because a) the market is, as its name suggests, not public, and b) the widespread AI disruption to software, if not every facet of society, is still speculative.
But the question about private credit is often presented as one of extremes: either it’s an overhyped bout of anxiety, or a looming financial apocalypse. That can be a fun academic debate for finance nerds. For normal consumers, though, the outcome needn’t be apocalyptic to cause pain.
How private credit affects you
Whether you think private credit is good or bad (more on that debate in a moment), it is undeniable that it’s now a much bigger part of the financial scaffolding than it was even a decade ago.
After the 2008 crisis, banks got more strict about lending, and small and midsize businesses that didn’t meet the higher standards had to find funding elsewhere. Enter private credit, at the time with just a few specialized firms, to pick up the slack.
Cut to 2026, and private credit is a lifeline for small and midsize businesses, rather than just a last resort, in part because the loans are typically flexible and tailored to specific business needs. Globally, private credit assets under management have soared more than tenfold since 2007. Moody’s expects private credit to roughly double in terms of assets under management, to $4 trillion, by 2030.
If the gears of private credit slow, many of those companies could lose access to loans that allow them expand their operations or, in some cases, keep their business from going under.
Whether you think private credit is good or bad (more on that debate in a moment), it is undeniable that it’s now a much bigger part of the financial scaffolding than it was even a decade ago.
After the 2008 crisis, banks got more strict about lending, and small and midsize businesses that didn’t meet the higher standards had to find funding elsewhere. Enter private credit, at the time with just a few specialized firms, to pick up the slack.
Cut to 2026, and private credit is a lifeline for small and midsize businesses, rather than just a last resort, in part because the loans are typically flexible and tailored to specific business needs. Globally, private credit assets under management have soared more than tenfold since 2007. Moody’s expects private credit to roughly double in terms of assets under management, to $4 trillion, by 2030.
If the gears of private credit slow, many of those companies could lose access to loans that allow them expand their operations or, in some cases, keep their business from going under.
Would that alone tank the $30 trillion US economy? Probably not: While the number of businesses tapping private credit lines has grown substantially, it’s still a relatively small slice of the whole pie. American companies receiving private credit investments directly employed about 811,000 workers in 2024, according to one industry study.
But a credit crunch would only amplify the various other shocks business leaders are grappling with now — like the soaring cost of fuel, uncertainty about the future of tariffs and stubborn inflation.
“The signs of stress that we are seeing are a source of concern” for the typical consumer, Itay Goldstein, a finance professor at the University of Pennsylvania’s Wharton School, told me. “One scenario where they will be affected is if there is collapse of financial institutions, and that’s certainly a big, big worry. But less lending to midsize businesses is also a source of concern, because they are employing people.”
Doomers versus boomers
Much like the AI debate, the private credit conversation has doomers and boomers.
Doomers point to the similarities between now and the run-up to the 2008 financial crisis, such as seemingly lax underwriting standards and the rapid proliferation of largely unregulated, mind-numbingly complex debt instruments designed to squeeze value out of thin air. After the height of the Covid-19 pandemic, when markets were flush and interest rates near zero, lenders may have been a bit too eager to hand out loans to companies that are now struggling.
Bulls say the fears are overblown — borrower defaults remain low, and firms’ recent moves to “gate” or restrict withdrawals from investors are standard practice in an illiquid market to prevent the equivalent of a bank run. And even if the past few months’ exodus of capital were a sign of deeper trouble, the market is still too small — private credit is valued at around $2 trillion, while the public US corporate bond market sits at about $13 trillion — to warrant comparisons to the subprime mortgage debacle of the 2000s.
Jamie Dimon, the JPMorgan Chase CEO and unofficial Wall Street soothsayer, gave that bullish view something of a surprise boost last week, writing in his annual letter to shareholders that “private credit probably does not present a systemic risk.” (That was a much rosier assessment than his musing last fall that there were likely more “cockroaches” lurking in private credit after two high-profile defaults sparked concerns about lending standards.)
He reiterated his confidence this week, telling analysts that he’s “not particularly worried” about JPMorgan’s $50 billion exposure to private credit.
And the International Monetary Fund also said this week that the turmoil at private credit titans like Blue Owl Capital, Ares Management and Blackstone appears to be limited, with a potential for a “contained systemic impact.”
Of course, the doomers may counter here that that’s almost exactly what Ben Bernanke, the former Federal Reserve chair, told Congress in the spring of 2007, when he testified that the problems in the subprime market seemed “likely to be contained.” (Narrator voice: They were not contained.)
Even Dimon, despite his confidence, believes a credit contraction “will happen one day.” And when it does, losses in private credit may be steeper because the industry “does not tend to have great transparency or rigorous valuation ‘marks’ of their loans,” he said, referring to private funds’ estimates of their assets’ market value. (Estimates that, of course, are not public, so outsiders just have to take fund mangers at their word.)
Bottom line
Private credit’s share of overall financing in the US economy has grown, and when that growth slows or stops, small businesses with few other options get squeezed.
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