Significant $225 billion business prospect for direct loan providers
The US private credit market is gearing up for significant growth, with direct lending emerging as a major component. This trend is driven by structural shifts, increased investor appetite, and evolving borrower needs.
According to Future Standard, a leading private credit investment firm, the opportunity for direct lending funds in the US over the next couple of years is estimated to be an impressive $225bn. This projection outpaced the strategy's performance since its inception, which has consistently returned a higher rate in the past year compared to its performance since inception, at 10.37%.
One of the key factors driving this growth is the retreat of banks from lending due to tighter regulation and market risks. This financing gap is being filled by private, non-bank lenders, particularly in the lower and core mid-market segments.
Private credit offers advantages over traditional lending methods. It can often be executed faster and with less market risk than broadly syndicated loans or high-yield bonds, although it comes at a higher cost which borrowers are willing to pay amid uncertainty.
Growth sectors such as healthcare and technology are relying increasingly on customized, flexible financing from private credit lenders. Despite the tightening of new issue spreads over the past year, the private credit strategy's performance has remained strong.
Looking ahead, refinancing needs are expected to drive further demand for private credit refinancing solutions, particularly ahead of a 2026-2027 maturity wall for high-yield bonds and leveraged loans. Market volatility and economic challenges in 2025 are expected to continue favoring private credit due to its less correlated returns and tailored financing solutions.
Expansion is particularly expected in the middle market and smaller borrower segments that require incrementally sized loans too small for syndicated markets but with strong growth potential. Fundraising remains cautious, with some flight-to-quality among investors favoring established managers and record fund sizes for top general partners, indicating selective capital deployment over the near term.
Despite the growing demand, the current levels of demand for private credit financing and the growth in supply of those funds are roughly equal, suggesting little overcapacity. The private credit default rate has fallen for the second consecutive quarter, demonstrating the resilience and consistency in the strategy's performance.
Direct lending continues to represent a leading opportunity to finance growth, especially in situations where operational improvement initiatives underpin the borrower's ability to repay debt. If non-private credit lenders continue growing at their three-year average rates, the lending opportunity available to be filled by direct lenders is approximately $225bn per year.
In summary, the US private credit market is set for robust growth with increasing market share over traditional bank and public debt markets, driven by structural lender withdrawal, investor demand for yield, and evolving borrower needs. With $2.8 trillion in assets projected by 2028 and continued deal activity growth over the next few years, direct lending remains a significant and promising area for investment.
[1] InvestmentNews, "Private credit set for robust growth," 2023. [2] PitchBook, "Direct lending: A growing opportunity in the US private credit market," 2023. [3] S&P Global Market Intelligence, "US direct lending market shows resilience," 2024. [4] KPMG, "The future of private credit," 2024.
Businesses seeking customized, flexible financing are turning to private credit market, as direct lending emerges as a major component fuelling significant growth in the US. Investors are seeing direct lending funds as a promising area for investment, with Future Standard estimating an opportunity of $225bn over the next few years.
