Hagler: Private credit fuels small biz, manufacturing

Published: Sunday, June 15, 2025 at 7:31 am

**Private Credit: A Lifeline for Small Businesses and Manufacturers**

The U.S. economy's small businesses and manufacturers are facing a significant challenge: a capital crunch. As traditional banks become more cautious with their lending practices, many companies struggle to secure the financing necessary for growth, innovation, or even survival. Private credit is emerging as a crucial solution, providing a vital source of funding where it's needed most.

Private credit offers tailored financing to companies that may be too small, too new, or too unconventional for traditional bank loans. A study by EY, commissioned by the American Investment Council, revealed that 70% of borrowers turned to private credit because they were too small for bank syndication. Other key reasons cited include faster execution, larger loan sizes, and more flexible terms.

The impact of private credit is substantial. In 2024, companies backed by private credit employed 811,000 people, paid $87 billion in wages and benefits, and contributed $145 billion to the gross domestic product. The median company supported by private credit employs 182 people. When considering suppliers and local spending, the economic activity supported by private credit translates to 2.5 million jobs and $370 billion in economic output.

Unlike traditional lenders, private credit investors often cultivate close, long-term relationships with borrowers, offering operational support and strategic guidance. This is exemplified by companies like Otter Learning, an early childhood education company, which used private credit to improve employee benefits and expand access to education.

Private credit also plays a critical role in supporting the manufacturing sector, funding equipment upgrades, production capacity expansion, acquisitions, and succession plans. This support is particularly important for capital-intensive industries like aerospace, automotive, electronics, and military manufacturing. Private credit has become a key financing source in traditional manufacturing regions, supporting tens of thousands of jobs in states like Michigan, Ohio, and Pennsylvania.

Despite its benefits, some critics advocate for increased regulation of private lenders. However, a recent Federal Reserve report suggests that private credit poses limited systemic risk.

BNN's Perspective:

While the growth of private credit offers a welcome solution to the capital needs of small businesses and manufacturers, it's crucial to strike a balance. Over-regulation could stifle this vital source of funding, but a lack of oversight could also create risks. A measured approach, focusing on transparency and risk management, is essential to ensure the continued health and stability of this important segment of the financial market.

Keywords:

private credit, small businesses, manufacturers, financing, capital, economic growth, jobs, lending, investment, American Investment Council, EY, manufacturing jobs, regulation, Federal Reserve, economic output

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