Private Credit Becomes a Mainstream Funding Source: How Non-Bank Lenders Took Over Corporate Finance

By Taimour Zaman

I’ve been watching lending markets since before most of today’s fintech founders were born. Seen cycles come and go. Witnessed innovations that stuck and fads that fizzled. But what’s happening with private credit? This is different.

This isn’t some clever financial engineering that’ll blow up in five years. This is a permanent rewiring of how capital flows to businesses—and most people still don’t realize how complete the transformation has been.

The Stat That Made Me Put Down My Coffee

Non-bank lenders now hold $2.8 trillion of the $4.5 trillion in U.S. commercial real estate debt. That’s 62% of the market.

Read that again. Banks—the institutions we’ve trusted to finance buildings since the 1800s—control barely more than a third of commercial property lending now.

And it’s not just real estate. By 2022, private debt funds were providing the majority of financing for leveraged buyouts. Not participating. Not co-lending. Majority.

Late last year, direct lenders were sitting on $300 billion in committed capital waiting to be deployed. For perspective, that’s more than the combined market caps of Goldman Sachs and Morgan Stanley. And projections suggest global private credit will hit $3 trillion before 2030.

When I started in this business, “private credit” meant desperate companies paying loan sharks. Today it means pension funds, endowments, and the smartest institutional money in the world building permanent allocations to an asset class they consider essential infrastructure.

How Banks Lost the Plot

Let me be blunt: banks didn’t lose their lending dominance because private credit was better. They lost it because they tied their own hands.

Post-2008 regulations made sense in principle—nobody wanted another financial crisis. But the unintended consequence was that mid-market and leveraged lending became economically unattractive to banks. Higher capital requirements. Stricter stress tests. Loan committees are paranoid about headline risk.

Meanwhile, the businesses banks were backing away from didn’t stop needing capital. Private equity firms still needed to finance acquisitions. Real estate developers still needed construction loans. Growing companies still needed expansion capital.

Private credit funds saw the gap and sprinted through it. And here’s what nobody expected: they did it better.

Where Traditional Lending Completely Collapsed

Commercial Real Estate: The Canary in the Coal Mine

Multifamily housing tells the whole story. Non-bank sources now finance roughly 70% of these loans. Government-sponsored agencies like Fannie and Freddie, along with private debt funds, dominate the space.

By early 2023, alternative lenders were originating 20% of new CRE loans—and that percentage has only grown as regional banks continue retreating from anything touching office properties or urban retail.

I’ve watched regional banks—historically the backbone of local commercial lending—effectively abandon entire asset classes they financed for generations. The capital didn’t disappear. It just found new intermediaries.

Private Equity: The Total Flip

Here’s how fast this changed: In 2019, if you were a mid-market private equity firm, your first call for acquisition financing was to a bank. Full stop.

By 2023, your first call was to a direct lender. Banks became the backup option—if they were called at all.

Why? Speed and certainty. A private credit fund can commit to $200 million in debt financing in three weeks. They don’t need syndication. Don’t need six committee approvals. Don’t have regulatory capital constraints, making them nervous about concentration risk.

When you’re bidding against three other buyers in a competitive auction, having a committed debt financing letter from Ares or Blackstone’s credit arm beats a “highly confident” letter from a bank every single time.

The Specialization Advantage Nobody Talks About

One reason private credit won isn’t just that banks retreated—it’s that private lenders got good at specific things.

Healthcare lending is a perfect example. Try explaining to a regional bank’s loan committee why a roll-up of ophthalmology practices deserves $150 million in debt. They’ll look at you like you’re insane.

But some funds do nothing but provide healthcare services lending. They know the reimbursement models, understand the regulatory environment, and can underwrite physician employment agreements in their sleep. They’re not generalists trying to understand your business. They knew your business before you called them.

Same story in infrastructure. Renewable energy projects. Data centers. Life sciences. Aerospace. Private credit funds built specialized teams with deep sector expertise, and they can make decisions banks—with their generalist credit cultures—simply can’t match.

Why CFOs Keep Choosing Private Credit (Even When Banks Say Yes)

I’ve had dozens of conversations with financial executives over the past two years, and something interesting keeps coming up: many now prefer private credit even when bank financing is available.

Here’s what they tell me:

• The relationship is different. When something goes sideways—and in business, things always do—they’re talking to a partner, not a committee. Private credit funds assign dedicated teams. Decisions are made by people who understand the context, not by bureaucrats applying rigid policies.
• Covenant flexibility is real. Banks load up facilities with maintenance covenants that trigger at the worst possible times. Private lenders structure incurrence covenants that give you room to operate. When you’re executing an aggressive growth plan, that difference matters enormously.
• The certainty premium has value. No syndication risk. No market condition clauses. No last-minute repricings because credit markets got choppy. When a direct lender commits, they close. For boards worried about fiduciary duty, that certainty is worth real money.
• Speed compounds advantages. In a competitive M&A process, shaving 60 days off financing timelines can mean winning the deal instead of watching it go to a competitor. I’ve seen transactions where private credit’s speed advantage was literally the difference between success and failure.

The Smart Money Validated It

You want to know when private credit truly went mainstream? When CalPERS started allocating billions to it.

The California Public Employees’ Retirement System isn’t some adventurous hedge fund chasing yield. It’s a $450 billion pension fund with a fiduciary duty to millions of retirees. When CalPERS, CalSTRS, Teacher Retirement System of Texas, and Yale’s endowment all build permanent allocations to private credit, that’s not speculation. That’s institutional validation.

These organizations have 50-person investment teams stress-testing every allocation six ways from Sunday. If they’re committing capital for 10+ year lockups, they’ve concluded this asset class has permanent structural advantages, not temporary arbitrage opportunities.

What’s Coming Next (And What I’m Watching)

The growth won’t stop, but it will evolve.

• Competition will intensify. More capital chasing deals means spreads compress. We’re already seeing it in sponsor-backed deals where multiple funds compete for the same transaction. Good for borrowers. Challenging for fund returns.
• Product innovation will accelerate. Expect more hybrid structures blending debt and equity features. More creative earnout mechanisms. More bespoke solutions that blur traditional lending categories.
• Regulation is inevitable—but different. As private credit becomes systemically important, regulators will pay attention. But these funds aren’t insured by deposit insurance. Don’t access Fed facilities. Don’t pose the same contagion risks as banks. The regulatory response will be oversight-focused, not capital-constrained the way bank regulation is.
• Geographic expansion is already happening. The private credit model is getting exported globally. European direct lending is exploding. Asian markets are opening up. This isn’t just a U.S. story anymore.

The Real Story Nobody’s Telling

Here’s what strikes me after decades of watching financial markets: this isn’t about private credit disrupting banks. It’s about the financial system evolving to better serve the real economy.

Banks were regulated into a corner, unable to serve mid-market borrowers efficiently. Those borrowers didn’t stop needing capital. Private credit emerged to meet that need—and discovered it could often do so more effectively than banks ever did.

The result is a more diverse, competitive, and frankly more functional lending ecosystem. Borrowers have choices. Capital finds its way to productive uses faster. Specialized expertise gets deployed where it matters.

That’s not disruption. That’s evolution. And it’s not reversing.

What This Means If You’re Raising Capital Right Now

Stop thinking about private credit as “alternative” financing. It’s just financing now. Often the best financing.

The universe of lenders is vast and varied. Some funds manage $50 billion and can finance billion-dollar LBOs. Others are $500 million specialist funds focused on narrow niches. Your job is to understand which lender matches your situation and your sector.

Pricing is more competitive than you think. Yes, private credit costs more than bank debt on a headline rate basis. But when you factor in covenant flexibility, speed to close, and certainty of execution, the all-in cost of capital often favors private credit.

And here’s the thing: the best private credit relationships get formed before you desperately need them. The CFOs who navigate this world successfully have existing relationships with three or four relevant lenders. When opportunity or necessity strikes, they’re making calls to people who already understand their business.

The capital markets have been permanently restructured. Your financing strategy should reflect that reality.

Navigate Private Credit With Expert Guidance

Understanding the private credit landscape is complex. Accessing it at optimal terms requires relationships and expertise.

At AltFunds Global, we’ve spent years building connections with leading private credit funds, direct lenders, and specialty finance providers across every major sector. We know which funds are actively deploying capital, which ones understand your industry, and how to position your story for the best possible terms.

Whether you’re financing an acquisition, seeking growth capital, or refinancing existing debt, we can connect you with the right lenders and help structure solutions that work.

👉 Want tailored guidance? Schedule your strategy call now.

The market has evolved. Your capital strategy should, too.