Quick answer
What is private credit?
Private credit is lending to companies by non-bank investors such as private debt funds and business development companies (BDCs), negotiated directly with the borrower rather than sold as public bonds. The loans are usually senior, floating-rate and made to middle-market companies with roughly $10 million to $1 billion of revenue.
Key takeaways
- 01Private credit is non-bank lending to companies, mostly middle-market.
- 02The Fed sizes it at $1.34T in the US and nearly $2T globally (mid-2024).
- 03Loans are mostly senior, secured and floating-rate.
- 04The extra yield pays for illiquidity and credit risk.
| Lenders | Private debt funds, BDCs, insurers |
|---|---|
| Borrowers | Middle-market companies ($10M–$1B revenue) |
| US size (2024 Q2) | $1.34 trillion (Fed) |
| Global size | Nearly $2 trillion |
| Rate type | Mostly floating |
| Retail access | BDCs, interval funds |
The Short Answer
What is private credit?
Private credit is lending to companies by non-bank investors such as private debt funds and business development companies (BDCs), negotiated directly with the borrower rather than sold as public bonds. The loans are usually senior, floating-rate and made to middle-market companies with roughly $10 million to $1 billion of revenue.
The Federal Reserve estimates the US market at $1.34 trillion and the global market at nearly $2 trillion as of mid-2024, about five times its 2009 size. Investors earn a higher yield than on public bonds in exchange for illiquidity, less transparency and exposure to smaller, often leveraged borrowers.
How It Works
How does private credit work?
A private credit fund raises money from investors (pensions, insurers, endowments and, increasingly, wealthy individuals) and lends it to companies. The lender and borrower negotiate terms directly: loan size, covenants, collateral and interest rate. Most loans are held to maturity rather than traded.
Most direct loans are floating-rate: the borrower pays a base rate such as SOFR plus a spread. When rates rose in 2022–2023, private credit income rose with them, which is one reason the market grew so quickly.
| Feature | Private credit (direct lending) | Public high-yield bonds |
|---|---|---|
| Who lends | Fund or BDC, often one lender or a small club | Many bondholders |
| Rate | Mostly floating (base rate + spread) | Mostly fixed |
| Seniority | Mostly senior secured | Often unsecured |
| Trading | Rarely traded; marked by the manager | Traded daily |
| Disclosure | Private to lenders | Public filings |
Market Size
How big is the private credit market?
Chart
Private credit market size, in trillions of dollars
The IMF noted in 2024 that about three-quarters of the market is in the US, and that more than a third of private credit borrowers had interest costs above their current earnings, a sign of how leveraged many of these companies are.
Where the Yield Comes From
Why does private credit pay more than bonds?
A floating-rate loan pays base rate + spread. With an illustrative 4.0% base rate and a 5.5% spread, the borrower pays 9.5%. Investors receive that coupon minus defaults, losses and fund fees.
Calculator
Private credit net yield (illustrative)
Enter a base rate, the loan spread, expected annual credit losses and total fund fees.
Gross loan yield
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Net yield to investor
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Net income on $1M
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Fees matter: non-traded BDCs and interval funds often charge management, incentive and servicing fees that together can take 2–4 percentage points of the gross yield. Read the fund's fee table before comparing headline distribution rates.
Where Embark fits
Funding a private credit allocation usually means selling stock first. What if the stock paid you instead?
Run your ticker to see what a position could target in income without a taxable sale.
- Starts with appreciated stock you already own instead of new cash for a credit fund
- §721 in-kind contribution: $0 tax at contribution, no sale to fund the allocation
- Targets 10%+ annual income; a target, not a guarantee, with a 3-year lock-up
Run the numbers
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How to Invest
How can individuals invest in private credit?
Publicly traded BDCs
Listed on exchanges, daily liquidity, but prices swing with markets.
Non-traded BDCs
Bought through advisors, priced at NAV, with limited quarterly repurchases. See interval funds vs non-traded BDCs.
Interval funds
SEC-registered funds that must offer to repurchase 5–25% of shares at set intervals. See what are interval funds.
Private funds
Drawdown funds for accredited investors or qualified purchasers, usually locked up for years.
Embark
How does Embark compare as an income source?
Buying into private credit usually means selling something first to raise cash. If your wealth is in appreciated stock, that sale can cost a large part of the gain in tax. Embark accepts the shares in kind into a §721 SPV, with $0 tax at contribution, and targets 10%+ annual income. It is a different risk: your exposure is to the contributed position and Embark's strategy, not to loans to private companies. Target, not guarantee; 3-year lock-up; accredited investors. See private credit vs Embark.
FAQ
Frequently asked questions
What is private credit in simple terms?
Loans to companies made by investment funds instead of banks, negotiated privately and usually held until they are repaid.
How big is private credit?
The Federal Reserve estimates $1.34 trillion in the US and nearly $2 trillion globally as of mid-2024.
Is private credit risky?
It carries credit, liquidity and valuation risk. Borrowers are often smaller and more leveraged than public bond issuers.
What returns does private credit pay?
Gross loan yields equal a base rate plus a spread; investors receive that minus losses and fees, which vary widely by fund.
Can individuals invest in private credit?
Yes, through listed BDCs, non-traded BDCs, interval funds or, for accredited investors, private funds.
Why has private credit grown so fast?
Banks pulled back from middle-market lending after 2008, and floating rates made the asset class attractive when rates rose.
Sources
Primary sources
Sources
- Federal Reserve FEDS Notes (May 2025): Bank Lending to Private Credit: Size, Characteristics, and Financial Stability Implications
- Federal Reserve FEDS Notes (Feb 2024): Private Credit: Characteristics and Risks
- IMF Global Financial Stability Report, April 2024, Chapter 2: The Rise and Risks of Private Credit
- 17 CFR §270.23c-3: Repurchase of securities of closed-end companies (interval funds)
- 15 U.S. Code §80a-2(a)(48): Definition of a business development company
- 26 U.S. Code §721: Nonrecognition on contribution to a partnership
Cite this article
Embark Funds Research. “What Is Private Credit? Lending Without the Banks.” Embark Funds, updated October 29, 2026. https://www.embarkfunds.com/insights/what-is-private-credit
Not tax, legal or investment advice: This article is educational and is not tax, legal, investment or Medicare advice. Rules and dollar amounts change every year and depend on your facts. Work with a CPA or financial planner before acting. Embark income figures are targets, not guarantees. Contributed shares have a 3-year lock-up, and Embark is open to accredited investors only.
Private Credit & Alternative Income Series
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Keep reading
Private Credit Risks What the Yield Is Paying For
Defaults are rising from low levels, more interest is being paid in kind, and some funds have hit their redemption limits. Here are the six risks to understand before you buy.
Private Credit vs Bonds What the Extra Yield Costs
Private loans usually yield more than public bonds of similar credit quality. The difference is real, and so are the costs: illiquidity, opacity and fees.
What Are Interval Funds? Periodic Liquidity, Explained
Interval funds let ordinary investors own private credit, real estate and other illiquid assets. The trade-off is that you can only sell back on the fund's schedule.
Interval Funds vs Non-Traded BDCs Two Doors to Private Credit
Both let individuals buy private credit at NAV with limited liquidity. The rules behind each one, and what happens when investors want out, are not the same.
Alternative Income
Income Without Selling Stock to Fund a Credit Allocation
Contribute appreciated stock to Embark's SPV with $0 tax at contribution and target 10%+ annual income. 3-year lock-up; accredited investors.