Private credit is lending to companies by investors other than banks, usually through specialist funds that negotiate loans directly with borrowers and hold them to maturity. In Europe it has become a core source of finance for mid-market companies and private equity-backed buyouts. This guide explains how the market works, who lends, how it differs from bank credit, how it is regulated and where the risks lie.
What is private credit?
Private credit covers loans that are privately negotiated, not traded on public markets, and provided mainly by non-bank lenders. The lender is usually a fund raised from institutional investors such as pension funds and insurers. Because the loans are held rather than syndicated, lender and borrower deal with each other directly for the life of the loan.
Private credit vs private equity
| Private credit | Private equity | |
|---|---|---|
| What investors hold | Loans (debt) | Shares (ownership) |
| Return | Contractual interest and fees | Gains on sale or listing of the company |
| Ranking in a default | Ahead of equity, often secured | Last |
| Control | Through loan terms and covenants | Through board seats and ownership |
The two often meet in the same deal: a private equity sponsor buys a company, and a private credit fund provides the debt that finances part of the purchase. Our private credit vs private equity article compares the two in more detail.
Main private credit strategies
- Direct lending. Senior loans to mid-market companies, often to fund buyouts. Many are structured as unitranche loans, which combine senior and junior debt in one facility. See how they compare in senior secured vs unitranche.
- Special situations and distressed credit. Lending to, or buying the debt of, companies going through restructuring, refinancing pressure or other complex events. See private credit workout strategies.
- Asset-based finance. Loans secured on pools of assets or receivables, such as equipment, consumer loans, trade receivables or real estate, rather than on a company’s cash flow.
- NAV lending. Loans to private equity or other funds, secured on the net asset value of the fund’s portfolio.
- Real estate debt. Senior and mezzanine loans secured on commercial property.
Who lends
The main lenders in European private credit fall into a few groups:
- Private credit fund managers, from global multi-strategy firms to country-focused specialists.
- Insurers and pension funds, which invest through funds and, in some cases, lend directly.
- Banks working with funds, through partnerships, co-lending, revolving credit facilities that sit alongside a fund’s loan, and financing provided to the funds themselves.
You can see the lenders, investors and advisers taking part in our next event on the attending companies page.
Why private credit grew in Europe
Several forces pushed lending towards non-bank providers:
- Tighter bank regulation after the financial crisis raised the capital banks hold against riskier corporate loans.
- Sponsor demand for fast, certain financing that does not depend on syndicating a loan to many banks.
- Investor demand from pension funds and insurers for floating-rate income with contractual protections.
- Flexibility, such as delayed-draw facilities for acquisitions and terms negotiated with one lender or a small club.
The balance between bank and non-bank lending still varies widely by country, depending on how strong local banks are, how active private equity sponsors are and how insolvency regimes work. Our Iberian and Italian market pages cover two of these.
How private credit differs from bank lending
| Private credit fund | Bank loan | |
|---|---|---|
| Funding | Committed capital from long-term investors | Deposits and wholesale funding |
| Holding | Usually held to maturity | Often syndicated or sold down |
| Speed and certainty | One lender or small club, no syndication risk | Can depend on syndication |
| Pricing | Typically higher | Typically lower for comparable risk |
| Regulation | Fund rules (AIFMD in the EU) | Bank capital and supervision rules |
Regulation: AIFMD II and loan-originating funds
Directive (EU) 2024/927, known as AIFMD II, created the first EU-wide rules for funds that originate loans. Member States had to apply most of the new measures from 16 April 2026. Among other things, the directive requires the manager of a loan-originating fund to:
- keep leverage at no more than 175% for an open-ended fund and 300% for a closed-ended fund;
- limit loans to any single borrower that is a financial undertaking, or a fund, to 20% of the fund’s capital;
- retain 5% of the notional value of each loan the fund originates and then transfers to third parties.
National transposition and transitional rules for existing funds differ by country. Fund managers should check the rules in their home Member State.
Key risks
- Liquidity. Loans cannot easily be sold, so investors are locked in for the fund’s life.
- Valuation. Loans are valued by models, not market prices, so losses can surface late.
- Credit cycle. Many borrowers carry floating-rate debt, which raises interest costs when rates rise.
- Opacity and links to banks. Exposures are hard to see across the financial system.
In its May 2026 Financial Stability Review, the ECB found that euro area financial institutions appear to have limited direct exposure to private credit. It concluded that private credit is unlikely, on its own, to be a source of systemic instability at present. It also noted that insurers and pension funds could face second-round losses in an adverse scenario. It called for close monitoring, better data and a harmonised global definition of private credit. For lenders’ own risk processes, see private credit due diligence in Europe.
Where to follow European private credit data
There is no single official measure of the European private credit market, and estimates differ because definitions differ. Useful public sources include the ECB’s Financial Stability Review, ESMA’s reports on alternative investment funds and the EBA’s risk assessments of banks. Industry bodies and advisers such as AIMA and Deloitte, through its Alternative Lender Deal Tracker, also publish data. When comparing figures, check what each source counts as private credit.
Frequently asked questions
What is private credit in simple terms? Loans to companies made by funds and other non-bank investors, negotiated privately and usually held until they are repaid.
Is private credit riskier than bank lending? Loans to the same borrower carry similar credit risk, but private credit is less liquid, less transparent and typically priced higher to reflect that.
How is private credit regulated in the EU? Through the rules for alternative investment fund managers. Since AIFMD II, funds that originate loans face specific limits on leverage, single-borrower concentration and risk retention.
What is the difference between private credit and direct lending? Direct lending is one strategy within private credit: senior loans made directly to companies, often mid-market buyouts.
Meet the lenders, investors and sponsors active in European private credit at Private Credit Days Europe, 18–19 November 2026, London. See who is attending.
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