Expanding Private Credit vs. Syndicated Loans: How Companies Evaluate Financing Options

That landscape has changed. Since the Great Financial Crisis, private credit has grown from a niche segment of corporate lending into a significant source of capital, offering companies an alternative. Today, a borrower considering an acquisition, business expansion or strategic refinancing may evaluate proposals from both a bank syndicate and private credit funds before deciding which approach best supports the transaction.

The result is not a replacement of one market by another, but a broader set of financing choices. Understanding how these markets differ and the trade-offs they present has become an increasingly important part of corporate finance decision-making.

The Rise of Private Credit

Private credit refers to loans provided directly by non-bank lenders, typically private credit funds or institutional asset managers. Rather than raising financing through a broadly marketed syndication process, borrowers negotiate directly bilaterally with one lender or a small club.

"The decision between private credit and syndicated loans is rarely about identifying a universally better solution"

The market initially focused on middle-market companies that sought an alternative to traditional bank lending which became harder to find after Leveraged Lending Guidelines made it more onerous for banks. Over time, private credit expanded well beyond the niche. Today, private credit supports transactions ranging from acquisitions and refinancing to dividend recapitalizations and growth investments, including increasingly large financings involving well-established companies.

Several factors have fueled this growth. Institutional investors have steadily increased allocations to private assets, creating a larger pool of capital available for direct lending. At the same time, borrowers have shown growing interest in financing solutions that can be tailored to the specific needs of a transaction rather than relying on standardized market structures.

Why Syndicated Loans Continue to Matter

Despite the rapid growth of private credit, syndicated loans remain one of the foundations of corporate financing.

In a syndicated loan, one or more banks arrange the financing before distributing portions of the loan to a group of institutional investors or lenders. This approach allows companies to raise substantial amounts of capital while diversifying funding across multiple participants.

"Syndicated loans remain one of the foundations of corporate financing"

Banks play a central role throughout the process. They advise clients on financing strategy, structure the transaction, coordinate documentation and place the loan with investors. For companies that regularly access the capital markets, syndicated loans often provide an efficient way to secure financing while maintaining relationships with a broad lending community.

How Companies Compare the Two

The decision between private credit and syndicated loans is rarely about identifying a universally better solution. Instead, finance teams weigh a series of practical considerations that reflect the priorities of a particular transaction.

One of the first questions is timing.

Imagine a private equity sponsor negotiating the acquisition of a business with a firm signing deadline. The seller wants confidence that financing will be available before completing the transaction. In this situation, a private credit lender willing to commit the full financing can offer a relatively straightforward execution process involving a limited number of counterparties.

A syndicated loan can also provide financing certainty, particularly when supported by underwriting commitments from arranging banks. However, distributing the loan across a broader investor base generally involves additional coordination and market execution.

Flexibility is another important consideration.

Private credit transactions are negotiated directly between borrower and lender, allowing financing terms to be customized around the company's capital structure, business model or transaction objectives. That flexibility can be valuable for acquisitions, complex refinancings or businesses with financing needs that fall outside conventional market structures.

Syndicated loans tend to follow more standardized documentation and usually require ratings from at least of the large recognized ratings agencies. The standards continue to evolve alongside investor demand and changing market conditions.

Cost also plays a central role in the analysis.

For companies with broad access to institutional investors, the syndicated loan market may offer highly competitive pricing, particularly when credit markets are performing well. Private credit financing may carry a higher overall cost in exchange for greater flexibility, faster execution or enhanced certainty.

Neither approach is automatically less expensive. Financing costs ultimately reflect the borrower's credit profile, transaction structure and prevailing market conditions.

Companies also consider the nature of the lender relationship they want to build.

Private credit often means working with a relatively small lending group that may remain involved throughout the life of the investment. Syndicated loans create relationships with a broader network of banks and institutional investors, which can support future financing activities across debt capital markets, treasury services and strategic advisory.

Transaction size remains another important differentiator. While private credit funds have demonstrated an ability to finance increasingly large transactions, the syndicated loan market continues to play a leading role in some of the largest corporate financings by efficiently distributing risk across a wide investor base.

When Private Credit May Be the Right Fit

Private credit has become particularly attractive for transactions where execution certainty and flexibility outweigh other considerations.

Sponsor-backed acquisitions are among the market's most active segments. Private equity firms often value the ability to negotiate directly with a lender capable of committing the full financing package within a compressed timeline.

Middle-market companies also frequently turn to private credit because financing can be structured around their specific operating profile and long-term growth plans.

"Private credit has become particularly attractive for transactions where execution certainty and flexibility outweigh other considerations"

The market has also become an important source of capital for more complex transactions, including situations involving bespoke capital structures or financing requirements that may not align neatly with syndicated market conventions.

When Syndicated Loans May Be the Better Choice

Syndicated loans continue to be well suited to companies seeking large financing commitments and broad access to institutional capital.

Established issuers often benefit from the competitive dynamics of the syndicated market, where multiple investors participate in the financing process. This broad distribution can support efficient pricing while helping companies maintain long-standing relationships with banks and institutional lenders.

Borrowers that access the debt markets regularly may also value the familiarity, scale and repeatability that syndicated loans can provide over multiple financing cycles.

A More Flexible Financing Landscape

The growth of private credit has reshaped the corporate financing landscape, but it has not displaced the syndicated loan market. Instead, the two have evolved alongside one another.

Banks remain central participants in corporate finance, acting as advisors, arrangers and lenders across a wide range of transactions. At the same time, private credit funds have become significant providers of capital, expanding the financing options available to companies of different sizes and across different industries.

Rather than choosing between competing markets, many borrowers now evaluate proposals from both. In some transactions, companies even combine syndicated loans and private credit to achieve the desired balance of flexibility, pricing and execution certainty.

The financing decision has become less about finding a single source of capital and more about selecting the structure that best supports a company's strategic objectives.

Choosing the Right Financing Strategy

The continued expansion of private credit has given corporate borrowers more choice than ever before. Syndicated loans continue to provide deep pools of capital and broad market access, while private credit offers flexibility and tailored financing solutions that can be particularly valuable in certain situations.

Neither market represents a universal answer. The most appropriate financing solution depends on the company's objectives, transaction timeline, capital structure, financing requirements and long-term strategy. As market conditions evolve, many finance leaders view both markets as complementary tools within a broader financing toolkit rather than competing alternatives.

"Neither market represents a universal answer"

As part of its broader financing and advisory capabilities, BBVA Corporate & Investment Banking works with clients to evaluate a range of financing alternatives, including syndicated loans and private credit, based on their strategic objectives, financing needs and prevailing market conditions.