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 software and technology loan demand after 2020 was a key driver of private credit's growth, which reached almost $2.5 trillion in outstanding loans by 2025.
- • Cities with a higher concentration of tech employment saw significantly stronger private credit expansion after 2020, and cities with more private credit growth subsequently recorded higher firm formation and employment.
- • The article finds that bank regulation and policy rates were less relevant drivers in recent years, so a relaxation of bank rules alone is unlikely to materially reverse private credit's growth.
- • Narrowing loan spreads and a shift toward borrowers with weaker fundamentals raise open questions about whether risks are fully priced and whether tech-sector expansion is sustainable.
Summary
A Bank for International Settlements article by Puriya Abbassi examines how private credit financed the post-2020 shift to the digital economy. Private credit, a non-bank lending market dominated by closed-end funds that extend direct loans to middle-market firms, has grown to almost $2.5 trillion in outstanding loans as of 2025. The article analyses PitchBook data covering roughly 14,000 US direct loan deals from 2010 to 2025.
According to the article, aggregate borrowing by tech firms rose from around $22 billion, or 22% of total private credit, in 2010 to over $1 trillion, or 44%, by 2025. Growth accelerated after the Covid-19 pandemic, which pushed economic activity toward software and artificial intelligence firms. Private credit's model, which lends against recurring revenue and intangible assets rather than EBITDA or physical collateral, suited these borrowers, whose assets are difficult to seize or liquidate in a standard insolvency. Banks, by contrast, tend to prefer tangible collateral and earnings-based underwriting.
The author's regression analysis compares US cities by tech employment share. Lending grew similarly across cities before 2020, but afterwards cities with a higher tech employment share saw significantly stronger direct lending growth, which the article interprets as evidence of rising tech credit demand. The article also finds that cities with greater private credit expansion subsequently experienced higher firm formation and employment, both inside and outside the tech sector.
The article concludes that tech credit demand and the ability of private credit funds to supply it were more important than changes in bank regulation or interest rates in recent years, so relaxing bank rules alone is unlikely to reverse the trend. It flags narrowing loan spreads and a shift toward weaker borrowers as reasons to question whether risks are fully priced. Whether the tech-sector expansion financed by private credit is sustainable, or poses financial stability risks, is described by the author as an open question.
According to the article, aggregate borrowing by tech firms rose from around $22 billion, or 22% of total private credit, in 2010 to over $1 trillion, or 44%, by 2025. Growth accelerated after the Covid-19 pandemic, which pushed economic activity toward software and artificial intelligence firms. Private credit's model, which lends against recurring revenue and intangible assets rather than EBITDA or physical collateral, suited these borrowers, whose assets are difficult to seize or liquidate in a standard insolvency. Banks, by contrast, tend to prefer tangible collateral and earnings-based underwriting.
The author's regression analysis compares US cities by tech employment share. Lending grew similarly across cities before 2020, but afterwards cities with a higher tech employment share saw significantly stronger direct lending growth, which the article interprets as evidence of rising tech credit demand. The article also finds that cities with greater private credit expansion subsequently experienced higher firm formation and employment, both inside and outside the tech sector.
The article concludes that tech credit demand and the ability of private credit funds to supply it were more important than changes in bank regulation or interest rates in recent years, so relaxing bank rules alone is unlikely to reverse the trend. It flags narrowing loan spreads and a shift toward weaker borrowers as reasons to question whether risks are fully priced. Whether the tech-sector expansion financed by private credit is sustainable, or poses financial stability risks, is described by the author as an open question.
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