Private credit spent the last several years as the default answer for growth-stage companies that didn't fit neatly into a bank's underwriting box. That default is being tested. Bloomberg reported in August that non-traded business development company fundraising fell roughly 82% year over year in the second quarter of 2026, and that private credit funds are increasingly getting squeezed as highly-indebted borrowers refinance back into cheaper bank loans now that rates have stayed elevated longer than expected.
None of this means private credit is disappearing. Major players like Ares posted record fundraising even amid the turmoil, and more than 80% of portfolio managers still expect increased allocations to the asset class over the next year. But the market is clearly repricing risk, and that repricing has direct implications if you're a borrower in the market right now rather than an institutional allocator watching from the sidelines.
What's actually changing for borrowers
- Terms are getting more selective. A market flush with capital chasing deals tends to compete terms down. A market where fundraising is contracting and lenders are more cautious about credit quality tends to do the opposite — expect more scrutiny, not less, on underwriting.
- The bank alternative is more competitive than it's been in years. If highly-leveraged borrowers are refinancing out of private credit and into bank debt, that's a signal the rate gap between the two has widened enough to matter. It's worth re-checking the bank conversation even if it wasn't competitive the last time you looked.
- Lender selection matters more in a contracting market. When capital was abundant, almost any private credit fund could compete for a deal. In a market where funds are shrinking and being more selective, the lender's actual staying power and reputation for standing behind borrowers through a rough patch becomes a real differentiator, not a footnote.
A tightening private credit market doesn't mean the capital disappears. It means the easy version of getting it does.
The practical takeaway
If you're planning to raise debt in the next six to twelve months, this is a good moment to widen the search rather than default to whichever private credit fund made the friendliest pitch last time. Re-run the bank conversation, get real comparisons rather than assuming private credit is automatically the faster or more flexible option, and weight lender selection more heavily than you might have eighteen months ago. Markets that are repricing risk reward borrowers who shop the decision, not the ones who take the first term sheet that shows up.
Sources: Bloomberg, "Private Credit Makes a Big Pivot as Direct Lending Funds Shrink"; Bloomberg, "Private Credit Squeezed By Bank Refinancings"