Private Credit Booms as Main Street Firms Seek Capital Access

For corporates, especially smaller Main Street businesses, private credit (aka private debt) appears as an avenue through which they can get the capital they need.

And for the lenders, the opportunity is ripe to tap into a market worth trillions of dollars.

As has been noted through the past year, and as has been a trend, traditional lending channels — read: banks — have become more stringent in their underwriting and lending activities. The Federal Reserve estimated last month that small business lending waned in the third quarter (the latest period for which stats are available) as “new lending” slipped 18.1% from the same period in 2022 and 16.4% from the previous quarter.

There was a 21.1% decrease in new term loans and a 13.2% decrease in new lines of credits. Part of the decline stems from an actual decline in applications overall, as approval rates at large banks stood at roughly 50% in the third quarter. The Fed noted that “about 70% of respondents indicated borrower financials were the most common reason for denying a loan. Other commonly cited reasons were borrower collateral and credit history.”

Credit on the Radar

In the meantime, credit’s on the radar for the Main Street firms that power the economy, overall.

PYMNTS Intelligence found  47% of SMBs with annual revenues of $10 million or less had access to business or personal financing. That leaves roughly half without access, and 8% of SMBs have access to only personal financing.

Almost half of Main Street SMBs say they plan to increase the use of credit products headed into 2024.

As to the conduits that are in sight: Half SMBs say they plan to use business credit cards, the next 12 months, surpassing business loans from online lenders at 22%.

But it is the online channels, and the alternative options that may draw greater usage in the months ahead.

The marquee names in the space include Apollo Global Management, Blackstone, Goldman Sachs. Blackrock estimated at the end of last year that the private debt markets are a $1.6 trillion assets under management industry, on track to reach $3.5 trillion by the end of 2028. At the moment, private debt is only about 12% of the total alternative lending arena.

And as for the tailwinds in private credit: As reported last month. Goldman Sachs is reportedly aiming to double the size of its $110 billion private credit business.

And Wall Street banks are reportedly interested in trading the loans themselves through secondary markets.

Beyond Goldman, the roster includes JPMorgan and Barclays.