Infographic Direct Lenders’ Comparative Advantage

Private credit has expanded rapidly in recent years. Direct lending, a major segment of private credit where nonbank lenders negotiate directly with private companies, had nearly $800 billion in outstanding investments in the United States in 2025, according to an estimate by Penn State’s Young Soo Jang, Dasol Kim of the US government’s Office of Financial Research, Chicago Booth’s Amir Sufi, and Booth research professional Xiangyu Chen. Direct lending has grown fast despite lacking many of the advantages banks have, such as branch networks and relationships with local borrowers.

How has that happened? Tighter regulation after the 2008–09 financial crisis helped make room for alternative lenders, but the researchers argue that the lenders’ success is fundamentally tied to a specialized model focused on middle-market companies that are backed by private equity. With a dataset that combines business records, creditor filings, and information about PE ownership, their study finds that these companies tend to operate in industries—such as business services and high-tech manufacturing—that have significant value in intangible capital and ongoing operations and thus may have a harder time finding financing through lending approaches that rely heavily on physical collateral.