The private credit market is exploding — now estimated between $1.5 and $2.1 trillion. It offers businesses a faster, less regulated way to borrow money compared to banks, though at a higher cost.
But that flexibility comes with risk: defaults are rising.
Borrowers seeking to bypass strict bank rules are turning to private lenders, paying higher rates for quicker access to capital. Yet with fewer safeguards and looser terms, repayment is less certain. And we’re starting to see cracks emerge.
Defaults: Private credit defaults rose a full percentage point last quarter, hitting 5.5% in Q2 2025.
Who’s most vulnerable: Smaller private issuers, says Fitch Ratings’ Lyle Margolis, because they’re exposed to economic swings, GDP slowdowns, and elevated interest rates.
Outlook: JPMorgan’s Jamie Dimon recently warned we “may have seen peak private credit” already — suggesting lending could tighten going forward.
If that happens, businesses could face tougher funding conditions, potentially slowing growth.
Why It Matters
For companies: Less access to private lending could make expansion harder, particularly for mid-sized firms that rely on it over traditional banks.
For investors: A pullback could shift demand back toward traditional credit markets, pushing bond yields lower and squeezing portfolio returns.
For stability: Unlike 2008, today’s underwriting is stronger. As Bain & Company’s Suvir Varma notes, “Private credit managers typically hold the risk themselves.” That means systemic risk is limited, even if defaults rise.
Takeaway
Private credit’s rapid growth is hitting its first real test. Defaults are climbing, confidence may waver, and lending could cool. But for now, the risks are contained within the private market — not the broader financial system.
— Lauren
Editor, American Ledger