When your business needs financing, choosing the right lender can make all the difference. Whether you’re looking to expand, manage day-to-day operations, or invest in new opportunities, selecting the most suitable funding source is an important and often critical decision. Traditional lending options such as bank loans remain familiar and reliable, while private credit, offered outside the traditional banking system, is gaining popularity.
At Forvis Mazars, our professionals have observed a growing interest in private lending; however, both avenues can offer strategic advantages depending on your goals. It is important to note that the goal is not to suggest that one option, whether private credit or traditional banking, is inherently better than the other. Instead, they represent two distinct approaches to lending, each with its own unique advantages and potential drawbacks.
In this three-part series, we’ll break down the key differences between traditional lending and private credit and show how we can support your business, whichever path you choose.
The Differences
Imagine a child who’s set on buying a new toy but doesn’t have enough money. Noticing this, their older sibling steps in with an offer: “Since I know a lot about this toy and you’re my brother, I'll go ahead and buy it for you now, but you'll need to pay me back later, with a little extra.” This type of agreement is similar to private credit, in which non-bank entities such as private credit funds or business development companies loan funds to private businesses.1 Now instead, imagine the child turns to their parents for money to buy the toy. Instead of a quick yes or no, the parents respond with a series of questions: “How’s your report card? Have you finished your chores? Isn’t that toy a bit expensive?” This type of response is similar to what you might encounter when seeking a traditional loan from a banking institution, where stricter regulations, formal requirements, and additional hurdles are often encountered.
Private Credit
Recently, private credit lending has emerged as a powerful force in the financial world. As traditional banks pull back due to regulatory constraints, private lenders are stepping in to help. This retreat has presented an opportunity for private lenders to step in, offering more flexible and tailored financing solutions. At the same time, institutional investors are increasingly drawn to private credit for its attractive yields compared to traditional fixed-income investments, offering flexible, fast, and tailored financing solutions.
Private equity firms have played a key role in this shift. Many now offer private credit alongside their equity investments, creating a centralized solution for businesses seeking capital. This dual capability allows private equity groups to provide customized financing that aligns closely with a company’s growth strategy and operational needs. In addition, these groups often provide strategic support and specific industry expertise, making them valuable long-term partners rather than just sources of capital.
As its transactions increased, the private credit market grew to more than $2 trillion in assets under management in 2024.2
Private credit providers may require a quality of earnings analysis to be completed. Forvis Mazars brings deep industry knowledge and is ideally positioned to support this process, offering tailored insights to help meet lender expectations and facilitate a smoother transaction.
Traditional Lending
As an alternative to private credit, traditional lending sources, such as banks and credit unions, continue to play a vital role in business financing, even as private credit gains popularity. These institutions often offer a level of stability, regulatory oversight, and cost efficiency that many businesses still value, especially those with strong credit histories and predictable cash flows. These loans can offer low fixed rates, which are beneficial to companies with a strong credit history that can handle a longer approval process.3 Moreover, the regulatory oversight that governs banks provides borrowers with a sense of security and predictability that is sometimes lacking in less-regulated lending environments. Traditional lending remains a strong option for businesses that meet the criteria for bank financing. It offers cost-effective capital, trusted relationships, and a broad suite of financial tools, all within a stable and regulated framework.
Key Differences
Businesses pondering the two options should consider these factors:
- Speed and flexibility. These aspects have contributed to an increase in private credit.4
- Cost-effective. Traditional lending offers longer repayment terms to help businesses with long-term financing.3
- Risk tolerance and collateral. Private credit can provide financing to businesses with lower credit ratings that may have difficulty obtaining credit from banks. As a result, the lender may offer a higher interest rate in exchange for the higher risk of loss.5
- Customization of terms. Private credit allows terms and conditions to be tailored to a borrower’s specific needs and objectives.6
- Loan amount. Banks can typically provide larger loans than alternative sources.7
- Credit history. Securing a bank loan can help businesses build their credit history.3
- Relationship dynamics. Private credit lenders have a direct relationship with borrowers.6
Conclusion
For more details, watch for the next two installments of this series, which will provide a closer look at private credit and traditional lending. If you have any questions on this topic or need assistance, please reach out to a professional at Forvis Mazars.
- 1“Private Credit: Characteristics and Risks,” federalreserve.gov, February 23, 2024.
- 2“Private Credit and Trends and 2025 Outlook,” dechert.com, 2025.
- 3“Alternative Financing Vs. Traditional Loans: A Small Business’s Guide,” container-news.com, February 29, 2024.
- 4“Fast-Growing $2 Trillion Private Credit Market Warrants Closer Watch,” imf.org, April 8, 2024.
- 5“Private Credit vs. Private Equity: What’s the Difference,” investopedia.com, January 29, 2025.
- 6“Private Credit Primer,” content.naic.org, 2024.
- 7“Expert Opinion: The Pros and Cons of Traditional Bank Loans,” eifunding.com, April 7, 2023.