Private credit in 2026 is a market of about $1.4 trillion in US loans, equal to roughly 10% of all debt owed by US nonfinancial companies and about one third of below-investment-grade debt outside bank loans, according to the Federal Reserve [1]. Growth has slowed, redemption requests at funds sold to individual investors have risen, and problem loans are edging up: Ares Capital (ARCC), the largest listed lender of this kind, reported non-accruals of 2.4% of its portfolio at cost as of June 30, 2026, up from 1.8% at the end of 2025 [2]. For banks, private credit is both a competitor and a fast-growing customer.
How big is the private credit market in 2026?
The Federal Reserve's May 2026 Financial Stability Report defines private credit as loans made by nonbanks and negotiated directly between the lender and the borrower [1]. Based on the latest data for the second half of 2025, the Fed puts the market at about $1.4 trillion [1]. It describes growth as solid but slower than in previous years.
The same report shows how business credit is split. The table below uses the Fed's figures for the end of 2025 [1]:
| Type of business credit | Outstanding | Growth in 2025 |
|---|---|---|
| Corporate bonds and commercial paper | $8.79 trillion | 3.2% |
| Bank lending to corporations | $1.91 trillion | 0.0% |
| Leveraged loans | $1.38 trillion | 12.6% |
| Private credit (estimate) | about $1.4 trillion | slower than prior years |
The contrast is striking. Direct bank lending to corporations did not grow in 2025, while leveraged loans and private credit did. Riskier companies have shifted much of their borrowing away from bank balance sheets and toward investment funds.
Where the money in private credit comes from
Most private credit is still funded by institutions through funds that lock up capital for 7 to 10 years [1]. The growth area has been semi-liquid funds sold to individual investors, which the Fed breaks into two types [1]:
- Perpetual-life business development companies (BDCs): $306 billion in gross assets and $161 billion in net assets. Most plan to cap redemptions at 5% of net asset value per quarter.
- Interval funds: $119 billion in gross assets and $80 billion in net assets, with lower leverage and a duty to accept at least 5% of redemption requests.
Together, these vehicles hold $425 billion in gross assets and $241 billion in net assets, about 20% of net assets in private credit vehicles [1].
Redemptions are the new pressure point
Investor sentiment turned negative after some high-profile corporate defaults and worries that AI could disrupt software companies, which had become the largest sector in private credit portfolios [1]. Redemption requests rose in the fourth quarter of 2025 and accelerated in the first quarter of 2026, when many funds received requests well above 5% of net asset value. Most managers capped payouts at 5%. In the first quarter, accepted redemptions exceeded new inflows for the first time since these vehicles were created [1]. The Fed judged the risk to financial stability limited and manageable: for the 10 largest perpetual BDCs, available bank credit and cash cover at least three quarters of redemptions at the 5% level [1].
What private credit means for borrowers
For companies, private credit offers speed, flexible terms and a single lender relationship, at a price. Ares Capital's second-quarter results show what that price looks like [2]:
| Ares Capital (ARCC) | June 30, 2026 | Dec 31, 2025 |
|---|---|---|
| Portfolio at fair value | $29.35 billion | $29.49 billion |
| Yield on debt at amortized cost | 10.3% | 10.3% |
| Non-accrual loans (at amortized cost) | 2.4% | 1.8% |
| Net asset value per share | $19.35 | $19.94 |
| Debt to equity | 1.15x | 1.12x |
Borrowers are paying around 10% on these loans, and about 71% of the portfolio is floating rate, so interest costs move with short-term rates [2]. New loans made in the second quarter carried a weighted yield of 9.4% [2]. The Fed notes that debt-servicing capacity is weaker among riskier private firms that rely on floating-rate debt, and that continued redemptions could reduce credit for higher-risk borrowers, who may find other sources costly or hard to reach [1]. As of August 7, ARCC shares closed at $20.01, slightly above net asset value and about 1% below their level at the end of 2025, which suggests the market sees the losses as contained so far [3].
What private credit means for banks
Banks have not stepped back from this market; they have moved to a different position in it. Bank credit commitments to other financial entities rose to $2.6 trillion in the fourth quarter of 2025, and private equity firms, BDCs and other private credit vehicles make up the largest part of that lending [1]. In practice, a bank that once made a leveraged loan directly now often lends to the fund that makes the loan, taking a senior position with a cushion of fund equity beneath it. Ares Capital, for example, raised about $1.2 billion of new financing in the quarter, including larger bank-led revolving credit facilities [2].
Is this a good shift?
From a market perspective, much of it is. Risky corporate loans now sit more often with long-term investors who agreed to lock up their money, rather than with banks funded by insured deposits. That lowers the chance that a credit downturn becomes a banking problem. The fair counterpoint is transparency and liquidity. Private loans are valued by managers rather than by markets, and funds sold to individuals promise periodic liquidity on assets that cannot be sold quickly. The rise in non-accruals and the first net outflows from perpetual BDCs are signals worth tracking, not signs of a crisis.
Investors can follow listed BDC share prices on DataPorium's stock market pages and track private credit and private equity deals in the DataPorium investment screener.
Private credit in 2026 is large and still growing, but rising non-accruals and net fund outflows show the market is entering its first real test.
Key takeaways
- The Fed estimates the US private credit market at about $1.4 trillion, about 10% of nonfinancial corporate debt.
- Semi-liquid funds sold to individuals hold $425 billion of gross assets, and their redemptions exceeded inflows in the first quarter of 2026 for the first time.
- Ares Capital's non-accruals rose to 2.4% at cost as of June 30, 2026, from 1.8% at the end of 2025, while its debt yield held at 10.3%.
- Bank commitments to nonbank financial firms reached $2.6 trillion, so banks now finance private credit rather than compete with it directly.
Frequently asked questions
How big is the private credit market in 2026?
The Federal Reserve estimates US private credit at about $1.4 trillion, based on data for the second half of 2025. That equals about 10% of US nonfinancial corporate debt and about one third of below-investment-grade debt outside bank loans.
Is private credit a risk to the banking system?
The Fed judged the risks from recent redemptions to be limited and manageable as of May 2026. Banks are exposed mainly through $2.6 trillion of credit commitments to nonbank financial firms, typically in senior positions.
What interest rate do private credit borrowers pay?
At Ares Capital, the largest listed BDC, the weighted average yield on debt investments was 10.3% at amortized cost as of June 30, 2026, and new loans in the second quarter yielded 9.4%. Most of these loans have floating rates.
Why are investors pulling money from private credit funds?
Concerns about credit quality after several high-profile defaults, and worries that AI could hurt software companies, which are a large share of private credit portfolios, pushed redemption requests higher in late 2025 and early 2026.
