Direct loans to technology companies grew from about $22 billion in 2010 to more than $1 trillion by the end of 2025, according to research published by the Bank for International Settlements in September. Their share of the direct lending volume covered by the study rose from 22% to 44% over the same period. The acceleration after 2020 coincided with greater demand for cloud infrastructure, subscription software, cybersecurity and digital payments.
The expansion reflects a close fit between the assets of a digital business and the underwriting model of a private lender. A software company may own little property or equipment. Much of its value lies in intellectual property, customer relationships, contracts and recurring revenue. Those assets can support a viable company, but they are difficult to separate, value and sell in a conventional insolvency process.
Why Direct Lending Fits Digital Businesses
Private credit funds address that problem by underwriting the cash-generating capacity of the entire business. Rather than relying on a mortgage over a building or a claim on machinery, a lender can take a blanket lien over the borrower’s going-concern value and design covenants around the company’s operating performance. Customer retention, revenue concentration, contract quality, margins and cash burn become central to the assessment.
This approach is attractive to companies that are growing quickly but have yet to produce the earnings required by a bank’s standard lending model. Direct loans are negotiated with one fund or a small group of lenders. Terms can be tailored, execution can be faster, and a temporary deterioration in performance can be addressed through bilateral amendments rather than negotiations with a dispersed group of bondholders.
The flexibility has a price. In the BIS dataset, a direct loan to a technology borrower averaged $103 million, had a maturity of about five years and carried a spread of roughly six percentage points. Borrowers must accept both a relatively high funding cost and close monitoring by the lender.
Technology has consequently become a substantial portfolio allocation for the industry. Around 55% of the funds in the BIS sample had lent to technology companies by the end of 2025, up from 40% in 2010. For the average fund, technology loans represented about one third of the portfolio. Within the sector, lending shifted from traditional technology, media and telecommunications companies towards software-as-a-service and, more recently, artificial intelligence businesses.
Risk Is Rising Alongside the Market
The growth has also changed the risk profile. The share of technology borrowers with negative EBITDA in the BIS sample nearly doubled from 23% before 2020 to 46% after 2020. Among profitable borrowers, median debt to EBITDA tripled. Lenders responded by moving higher in the capital structure: the share of first-lien loans increased from 77.6% to 92.2%.
A first lien improves a creditor’s position, but it cannot create recoverable physical collateral. If a software product loses customers or is displaced by a new technology, the value of the operating business can fall quickly. Repayment still depends primarily on the borrower’s cash flow.
Pricing offers a second warning. As borrower fundamentals weakened, dispersion in loan spreads declined. The interquartile range narrowed from 3.25 percentage points to 1.75 percentage points. That does not prove that the market is systematically mispricing risk, but it raises a clear question: are lenders being paid enough to distinguish a resilient recurring-revenue business from one whose customer base and technology are vulnerable?
Interest-rate structure adds to the pressure. The IMF has found that private credit borrowers use floating-rate debt almost exclusively. A change in the benchmark rate therefore reaches the borrower’s interest bill quickly. Payment-in-kind provisions can defer a cash payment by adding interest to principal, but they also increase the amount owed if operating performance does not recover.
The market is harder to monitor than public bonds or syndicated loans. Direct loans do not trade frequently, and funds or third-party valuation agents estimate their value. That can reduce artificial day-to-day volatility, but it may also delay recognition of weaker credit quality. The IMF and the Financial Stability Board have highlighted data gaps, valuation practices, leverage and growing interconnections as areas that require closer scrutiny.
Private Credit Is Still Connected to Banks
Those interconnections include banks. Banks provide revolving facilities to private debt funds and business development companies, arrange transactions and increasingly form strategic partnerships with asset managers. Federal Reserve data show that credit commitments from the largest US banks to private credit vehicles reached $95 billion in the fourth quarter of 2024, of which $56 billion had been drawn. A Federal Reserve stress illustration found that the direct effect on large-bank capital and liquidity would have been limited at that point. The result is reassuring, but it does not eliminate the need to track a credit chain that has become longer and less transparent.
Private credit provides a genuine economic service. It can finance companies whose productive assets are code, customer relationships and future revenue rather than factories and real estate. Without it, some growing firms would have less access to debt or would need to sell equity earlier.