Evening Brief – 10.17.23
Private Credit Contributes $224B to US GDP
The American Investment Council has published a report compiled by EY on the impact of private lending on the US economy, including job creation, salaries, and overall economic activity.
The private credit industry has emerged as a viable alternative to traditional bank lending, particularly for small and medium-sized firms that frequently do not qualify for traditional bank loans or require capital beyond what banks are willing to supply.
In the United States, the sector has grown rapidly, rising from less than $400 billion in assets in 2012 to $1 trillion in 2021. By that year, private loans accounted for roughly 30% of the whole market.
According to the report, the top reasons US businesses chose private lending were certainty and speed (91%), more flexible covenants (77%), and a secure connection with a lender who holds loans until maturity (65%).
Approximately $500 billion in private credit was invested in more than 3,600 businesses and the industry supported about 1.6 million jobs in 2022, yielding $137 billion in wages and benefits and generating $224 billion of GDP.
Private credit was mostly used by companies with less than $100 million in revenue, and the median company receiving private credit had around 150 employees. In 2021, about 70% of private credit providers in the United States said their companies relied on private lending because they were “too small for bank syndication.”
In 2021, public and private pension funds, the largest group of investors, provided around 31% of total assets in private credit funds. Over the next three years, over 50% of investors intend to increase their private credit target allocation.
Private credit loans were made available to businesses of all sizes and sectors. Occupations in business services, such as banking, insurance, real estate, and renting and leasing, accounted for 40% of all private credit-supported jobs. Manufacturing (24%), personal services (14%), and information technology (10%) were also prominent sectors.
Private credit investments benefited all 50 states. California (82,000), Texas (46,000), New York (38,000), Florida (32,000), and Illinois (27,000) rounded out the top five.
“Following the 2008 financial crisis, many small businesses found it harder to gain access to the capital they need to grow and succeed,” said AIC president & CEO Drew Maloney. “This new report shows how private credit helped fill the void and responsibly partners with thousands of businesses across America to increase growth, support jobs, and serve local communities.”