Private credit and traditional banking each offer distinct lending approaches, with unique benefits and trade-offs. In the first article of our three-part series, we explored how traditional bank loans typically involve more stringent requirements but offer longer repayment horizons. In contrast, private credit, which originates from non-bank lenders, often provides greater flexibility, though it comes with higher interest rates and increased risk exposure.
In this second installment, we turn our focus to the advantages of private credit, highlighting why it is becoming an increasingly attractive option for borrowers seeking tailored financing solutions.
How Private Credit Works
Private credit used to be associated with financial distress due to higher pricing, but it now dominates private equity markets.1 Private lenders are able to provide a wide range of opportunities, including flexible terms and faster execution and pricing.1
Loans of private credit usually come from investment funds raised from limited partners seeking financial returns. Managers then have a pool of capital they can quickly use at their discretion.2 The lender and the borrower can negotiate terms to meet their specific needs, including interest rates, repayment schedules, covenants, and collateral requirements.2
There are varying types of debt investments to consider. Senior debt, such as asset-backed loans, has top priority in a company’s capital structure. Mezzanine financing is subordinate debt that ranks below senior debt but higher than common equity, combining aspects of debt and equity. Common equity would be the least important in the case of a default.3 Unitranche debt combines different types of debt into one loan so there is just one lender, which streamlines the process into a single set of documents.4
Benefits of Private Credit
Intended to be a lending solution for middle-market companies considered too risky or large for commercial banks, private credit has substantial benefits.5 Companies can potentially obtain financing quicker and with greater certainty with private credit than a bank loan.6
Private lending is highly customized, allowing financing to be tailored to the borrower’s needs.7 Borrowers may prefer a customized arrangement to avoid the disclosures and costs with bank loans.5 Private credit managers claim to have greater resources to deal with problem loans than traditional lenders, potentially resulting in fewer defaults and lower costs of financial distress.5
In addition, private credit has given new opportunities for private equity firms to obtain financing at the portfolio and fund levels.8 Sixty-three percent of private equity firms say they use private credit to support acquisition financing in their portfolios.8
Private credit has gained the interest of limited partners, and many of them surveyed believe private credit funds will have a significantly greater role in the industry.9 For limited partners, private funds can offer attractive risk-adjusted returns in a high-rate environment, shorter duration, and more predictable cash flow investments and diversification.
How Forvis Mazars Can Help
At Forvis Mazars, our Transaction Advisory professionals can help you navigate private credit deals with confidence. Whether you’re a private equity group or a corporation, we provide tailored due diligence support to help you execute with precision. Our team has advised on transactions totaling billions of dollars across a broad spectrum of industries. If your transaction crosses international borders, Forvis Mazars has global reach.
Conclusion
The final installment of this series will explore the topic of traditional lending. If you have any questions on this topic or need assistance, please reach out to a professional at Forvis Mazars.
- 1“Global Private Equity – Spotlight on the Industry: Private Equity and Private Credit: A Pair of Aces,” natlawreview.com, February 5, 2022.
- 2“Private Credit,” carta.com, March 27, 2025.
- 3“Mezzanine Financing,” wallstreetprep.com, updated January 14, 2024.
- 4“Unitranche Debt,” wallstreetprep.com, updated January 14, 2024.
- 5“Global Financial Stability Report, April 2024, The Last Mile: Financial Vulnerabilities and Risks,” elibrary.imf.org, April 16, 2024.
- 6“What is private credit? A guide to direct lending,” britannica.com, updated May 9, 2025.
- 7“A New Regime: The Future of Private Credit and Risk Management Needs,” chartis-research.com, October 15, 2024.
- 8“Private credit in PE: Will it continue to thrive in 2025?” privatebankerinternational.com, January 13, 2025.
- 9“Private Credit Takes Center Stage on LPs’ Investment Radar,” intralinks.com, November 22, 2023.