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Private credit is having its strangest year yet. Defaults are at record levels, and investors are putting more money into the asset class than ever. Both facts are true at once, and for a company trying to raise debt in 2026, the combination matters more than either headline alone.
The money has not gone away. It has become pickier. Lenders still have record capital to deploy, but they are deploying it to a narrower set of borrowers. This article explains what the data shows, which companies are losing access first, and what a borrower can do to stay on the right side of that line.
In this article
The headline figure is a record. Fitch Ratings reported in May 2026 that the US private credit default rate reached 6% for the 12 months ended April 30, the highest since it began tracking in August 2024. Of the 99 default events in that period, 81 involved borrowers defaulting for the first time, and more than half were driven by interest deferrals or the introduction of payment-in-kind interest.
Different trackers give different numbers, and that is the point. Each source measures a different slice of the market with a different definition of default. Read together, they show the same direction of travel.
| Source (date) | What it measured |
|---|---|
| Fitch Ratings (May 2026) | US private credit default rate of 6% for the 12 months to April 2026, a record for its index |
| Houlihan Lokey (September 2026) | Default rate of 3.0% size-weighted and 3.6% by count in Q2 2026 for borrowers with under $100 million of EBITDA, against 0.8% of principal across the whole market |
| Morningstar DBRS (February 2026) | Downgrades running at 3.3 times upgrades, with 17 borrowers cut to default or selective default over 12 months, against nine in 2024 |
| UBS (2026 forecast) | Projects private credit defaults could reach 9% to 10% by the end of 2026 |
Sources: Fitch via Bloomberg Law, Houlihan Lokey, Morningstar, UBS via Investing.com.
Capital keeps arriving. According to With Intelligence data reported in 2026, private credit funds raised $190 billion in the first half of 2026, a 53% increase on the first half of 2025. Specialty finance had the largest share of new funds in development.
Why that does not help every borrower. A lender sitting on fresh capital and a rising default book does two things. It keeps lending, because idle capital earns nothing, and it moves that capital toward the deals it is most confident in. Strong borrowers see competition for their paper. Weaker or less prepared borrowers see longer diligence, lower leverage, or a polite decline. The market is not closed. It is sorting.
The stress is concentrated at the small end. Houlihan Lokey found in September 2026 that stress among the smallest private credit borrowers has risen more than tenfold since 2023. Across the whole market, defaults were 0.8% of outstanding principal, but for companies under $100 million of EBITDA the rate was several times higher.
What that means in practice. Smaller companies have thinner margins, fewer levers to pull when costs rise, and less negotiating power when a loan needs amending. Lenders know this, so a company with $5 million or $15 million of EBITDA now faces more questions than it did two years ago, even with good numbers. The answer is not to avoid private credit. It is to arrive with a file that answers those questions before they are asked.
A refinancing is not a formality this year. If your facility matures in the next 12 to 18 months, assume the lender will re-underwrite the business from scratch, at today's standards, and plan your timeline around that.
Many defaults never reach a courtroom. In the Fitch data, more than half of the defaults came from interest deferrals or switching cash interest to payment-in-kind, where the borrower pays interest with more debt. Houlihan Lokey reported that the share of loans carrying a PIK option reached a new high in June 2026, although actual use remains modest.
Why borrowers should care. These quiet restructurings keep a company running, but they cost something. The debt grows, the lender gains leverage in the next negotiation, and the company's credit history now includes a distressed event that the next lender will see. If you are in discussions about amending a facility, it is worth understanding the options before you sign. Our debt restructuring advisory work starts with exactly that question. If the terms are new to you, our guide to private credit jargon covers PIK, OID and covenants in plain language.
Credit committees have not invented new criteria. They are applying the old ones harder. Four areas get the most attention.
Morningstar DBRS reported in April 2026 that about 10% of its rated portfolio has negative cash flow or interest coverage below 1x. Lenders now stress test coverage at higher rates before anything else. A clear DSCR and maximum loan analysis shows them the answer up front.
Receivables, inventory and equipment give a lender something to measure and monitor. Companies with real assets often get better access through asset-based lending or a borrowing base facility than through cash flow loans.
Late management accounts, gaps in the data room and unexplained adjustments to EBITDA slow diligence and lower confidence. A properly built private credit data room removes that friction.
Lenders want to see that the business can absorb a weak quarter without breaching its terms. Our term sheet checklist explains what to negotiate before you commit.
Start earlier than you think you need to. A refinancing or new raise that once took three months can take five or six when lenders are cautious. Starting late forces you to accept whatever terms are on the table.
Lead with the weak point. Every business has one. Lenders will find it in diligence. Addressing it in the credit memo, with your plan for managing it, builds more trust than hoping it goes unnoticed.
Match the deal to the right lender. Some private credit funds are pulling back from certain sectors and sizes while others are actively looking for them. Sending the same file to the wrong 30 lenders wastes months. Financely matches deals against a network of over 12,700 verified lenders across private credit, banks and specialty funds, so the file goes to the ones with current appetite for your sector, size and jurisdiction. Our private credit placement service covers this process end to end.
Consider the full capital structure. If senior lenders cap leverage lower than you need, the gap can sometimes be filled with junior or subordinated capital rather than by cutting the size of the plan. Our lender-ready package checklist is a useful starting point for any of these routes.
We review your deal, assess how lenders will see it in the current market, and tell you which structure and which lenders fit before you spend months pitching.
If your facility matures within 18 months, the earlier we see the file, the more options you keep.
Yes. Fundraising in the first half of 2026 was well ahead of 2025. Lenders are still deploying capital, but they are more selective about sector, size, leverage and the quality of the information they receive.
It is when a borrower that cannot pay cash interest agrees with its lender to add the interest to the loan balance instead. The company avoids a missed payment, but the debt grows. Rating agencies such as Fitch count many of these arrangements as default events.
Smaller borrowers usually have thinner margins and less room to cut costs or raise equity when conditions tighten. Houlihan Lokey's 2026 data shows default rates for companies under $100 million of EBITDA running several times higher than the market as a whole.
For most mid-market facilities, 12 to 18 months before maturity gives enough time to prepare the file, approach lenders and negotiate terms without being forced into a rushed decision.
This article is general information only and is not legal, tax, accounting or investment advice. Financely is an advisory and arranging firm, not a lender or broker-dealer. Any financing is subject to lender underwriting, due diligence, credit approval, documentation and conditions precedent. No outcome, terms or timeline is guaranteed. Third-party data is cited from the named sources as of their publication dates.
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