Key Takeaways
- • Tech firms' share of US direct lending by private credit funds rose from about 22% ($22 billion) in 2010 to 44-45% (over $1 trillion) by 2025, according to a Bank for International Settlements article by Puriya Abbassi.
- • Surging loan demand from software and technology firms, accelerated by the Covid-19 pandemic's shift to the digital economy, was a key driver of private credit's post-2020 growth.
- • Private credit's lending model, based on recurring revenue and intangible assets rather than EBITDA and physical collateral, suited asset-light software and AI borrowers that banks were less willing to finance.
- • Cities with a higher concentration of tech employment saw significantly faster private credit growth after 2020, and cities with more private credit saw higher firm formation and tech employment.
- • The analysis finds regulation and interest rates were less important than tech credit demand, so a relaxation of bank regulation alone is unlikely to materially reverse private credit's growth.
Summary
A Bank for International Settlements (BIS) article by Puriya Abbassi examines how private credit helped finance the post-2020 shift to the digital economy. With outstanding loans of almost $2.5 trillion as of 2025, private credit has become an important funding source for non-financial corporations. The article draws on PitchBook deal-level data covering almost 14,000 direct loans to US-based borrowers between 2010 and 2025, the United States being the largest private credit market globally.
Aggregate borrowing by tech firms from private credit funds rose from around $22 billion, or 22% of total private credit, in 2010 to over $1 trillion, or 44%, by 2025. Growth accelerated after 2020, coinciding with the Covid-19-driven structural shift toward software and artificial intelligence firms. The article argues that private credit's model, which features bespoke terms based on recurring revenue and intangible assets, suits such borrowers. By the end of 2025, about 55% of private credit funds had extended loans to tech firms, up from 40% in 2010.
The study uses differences in tech employment concentration across US cities to isolate credit demand. Lending followed similar trajectories across cities before 2020, after which cities with higher tech employment shares saw significantly stronger increases in direct lending. The author also finds that cities with faster private credit growth subsequently recorded higher firm formation and employment within and outside the tech sector. The article cautions that narrowing loan spreads and a shift toward borrowers with weaker fundamentals raise questions about whether risks are fully priced, and it concludes that whether the tech sector's private-credit-financed expansion is sustainable or poses financial stability risks remains an open question.
The findings bear on the policy debate over non-bank financial intermediation. The author notes that explanations based on post-GFC bank regulation and low policy rates are difficult to reconcile with the post-2020 acceleration, since policy rates rose in most countries while outstanding direct loans grew from about $450 billion in 2019 to almost $2.5 trillion by 2025.
Aggregate borrowing by tech firms from private credit funds rose from around $22 billion, or 22% of total private credit, in 2010 to over $1 trillion, or 44%, by 2025. Growth accelerated after 2020, coinciding with the Covid-19-driven structural shift toward software and artificial intelligence firms. The article argues that private credit's model, which features bespoke terms based on recurring revenue and intangible assets, suits such borrowers. By the end of 2025, about 55% of private credit funds had extended loans to tech firms, up from 40% in 2010.
The study uses differences in tech employment concentration across US cities to isolate credit demand. Lending followed similar trajectories across cities before 2020, after which cities with higher tech employment shares saw significantly stronger increases in direct lending. The author also finds that cities with faster private credit growth subsequently recorded higher firm formation and employment within and outside the tech sector. The article cautions that narrowing loan spreads and a shift toward borrowers with weaker fundamentals raise questions about whether risks are fully priced, and it concludes that whether the tech sector's private-credit-financed expansion is sustainable or poses financial stability risks remains an open question.
The findings bear on the policy debate over non-bank financial intermediation. The author notes that explanations based on post-GFC bank regulation and low policy rates are difficult to reconcile with the post-2020 acceleration, since policy rates rose in most countries while outstanding direct loans grew from about $450 billion in 2019 to almost $2.5 trillion by 2025.
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