Private credit is lending to companies by non-bank investors, mainly funds, negotiated directly with the borrower instead of being syndicated by banks or sold as listed bonds. For a mid-sized European company, it usually means flexible, floating-rate debt that costs more than a bank loan. For a fund manager, originating loans in the EU now follows harmonised rules under AIFMD II.
Private credit vs a bank loan vs a listed bond
The European Central Bank (ECB) defines it as directly originated, non-syndicated lending by non-bank financial entities to non-financial corporations. For the IMF, it is nonbank corporate credit provided through bilateral agreements or small club deals (ECB, Financial Stability Review, May 2026; IMF, Global Financial Stability Report, April 2024, Table 2.1).
The difference is who holds the debt. A bank lends from its balance sheet under prudential supervision. A listed bond is a security held by many investors, and admitting it to a regulated market requires a prospectus (Regulation (EU) 2017/1129, art. 3(3)).
A private credit loan is a contract with one fund or a small group of lenders. It is unrated and rarely traded. It usually costs more than a bank loan, in exchange for customised terms such as paying interest in kind during a liquidity squeeze (IMF, Global Financial Stability Report, April 2024, chapter 2).
Criterion: consider private credit when your bank will not lend the amount or structure you need, and the flexibility justifies the extra cost.
How big is the private credit market?
The IMF estimated global private credit at about $2.1 trillion in 2023, counting assets plus undeployed capital commitments (IMF, Global Financial Stability Report, April 2024, chapter 2). The BIS put global private credit fund assets above $2.5 trillion in March 2025, with outstanding loans above $1.2 trillion (BIS Quarterly Review, March 2025).
The ECB, in May 2026, sized the US market at around $1.4 trillion at the end of 2024. It put euro area-managed private credit funds at roughly €100 billion in 2025, after average growth of 14% a year since 2010 (ECB, Financial Stability Review, May 2026).
Around 70% of the private credit received by euro area non-financial firms comes from funds outside the euro area. And the capacity of private credit-backed euro area firms to pay interest from operating cash flow has deteriorated (ECB, Financial Stability Review, May 2026).
The sources measure different things: commitments, fund assets or loans. What to do: expect a lender managed outside the euro area, and check governing law, currency and reporting early.
Private credit strategies: direct lending, mezzanine, distressed and asset-based
The BIS groups private credit funds into four main strategies (BIS Quarterly Review, March 2025):
- Direct lending: covenant-heavy, floating-rate loans repaid from operating cash flow rather than collateral. It has been the dominant strategy for a decade.
- Mezzanine: junior or subordinated debt to larger companies, often with equity participation rights. More in subordinated and mezzanine debt.
- Distressed: funds that buy troubled debt in the secondary market at a significant discount.
- Asset-based lending: loans that require hard collateral, such as real estate, infrastructure or aircraft.
Criterion: stable cash flow and few hard assets point to direct lending; valuable assets, to asset-based lending; a gap above senior debt, to mezzanine.
Typical terms for the borrower: maturity, rate, covenants and fees
Maturity. In US data, private credit loans have averaged around five years. Fund life cycles typically run five to eight years, usually matching the loan portfolio’s average maturity (Federal Reserve, FEDS Notes, 23 February 2024; BIS Quarterly Review, March 2025). Ask whether the fund’s remaining life covers your term.
Rate. Almost all private credit loans are floating rate. The BIS reports an average spread of about 630 basis points over Libor or SOFR, roughly 300 above leveraged loans. Its 2026 study of US direct loans finds spreads of about 6 percentage points (Federal Reserve, February 2024; BIS Quarterly Review, March 2025 and September 2026). For Europe, treat these as an order of magnitude.
Covenants. They can cap leverage, set a minimum interest coverage ratio and restrict capital expenditure, dividends, additional debt and asset sales (IMF, Global Financial Stability Report, April 2024, chapter 2).
Fees. Ask for every fee in the term sheet: upfront fee, commitment fee on undrawn amounts and prepayment penalty. A Federal Reserve staff note observes that prepayment penalties can be high because lenders usually hold these loans to maturity (Federal Reserve, FEDS Notes, 23 February 2024). The sources cited here do not report fee levels.
Action: ask each lender for the effective annual cost after fees and the prepayment schedule. Test covenant headroom against a fall in EBITDA, not against the budget.
EU rules for funds that originate loans: AIFMD II and ELTIF 2.0
AIFMD II: Directive (EU) 2024/927
Directive (EU) 2024/927 of 13 March 2024 amended the Alternative Investment Fund Managers Directive (AIFMD) to harmonise the rules for funds that originate loans. It entered into force on 15 April 2024. Member States had to transpose it by 16 April 2026 and apply most of it from that date (Directive (EU) 2024/927, arts. 3 and 4).
A “loan-originating AIF” is one whose strategy is mainly to originate loans, or whose originated loans reach at least 50% of its net asset value (Directive 2011/61/EU, art. 4(1)(at), as amended). Its manager must respect these limits:
- Leverage of no more than 175% if open-ended and 300% if closed-ended, under the commitment method (art. 15(4b)).
- A cap of 20% of the fund’s capital on loans to a single borrower that is a financial undertaking, an AIF or a UCITS (art. 15(4a)).
- Retention of 5% of each originated loan later transferred, and a ban on originate-to-distribute strategies (art. 15(4i) and (4h)).
- A closed-ended structure, unless the manager shows its authority that liquidity risk management fits the investment strategy and redemption policy (art. 16(2a)).
Funds constituted before 15 April 2024 are deemed compliant with the leverage, concentration and closed-ended rules until 16 April 2029, without raising leverage or single-borrower exposure past the limits, or past current levels if already over them. Funds raising no new capital after 15 April 2024 are deemed compliant indefinitely (Directive 2011/61/EU, art. 61(6), as amended).
For a manager: read your home Member State’s transposing law before launch. For a borrower: the manager must have effective processes to assess credit risk and monitor its loan portfolio (art. 15(3), as amended), so prepare your reporting pack.
ELTIF 2.0: Regulation (EU) 2023/606
Regulation (EU) 2023/606 reformed the European long-term investment fund (ELTIF) and has applied since 10 January 2024. An ELTIF can lend to qualifying portfolio undertakings if each loan’s maturity does not exceed the fund’s life (Regulation (EU) 2015/760, art. 10(1)(c), as amended).
An ELTIF must invest at least 55% of its capital in eligible assets. An ELTIF that retail investors can buy may place no more than 20% of capital with a single undertaking and borrow up to 50% of net asset value. One marketed only to professionals can borrow up to 100% and is not bound by the 20% limit (arts. 13(1), 13(2)(a), 13(7) and 16(1)(a)).
Decision for a manager: a professional loan fund gives more room; an ELTIF reaches retail investors under stricter rules. See what an ELTIF is.
Tokenized private credit: what changes and what does not
Tokenizing private credit means recording a credit instrument, such as a fund unit or a note, on a distributed ledger. Spain’s Ley 6/2023 allows securities to be represented through distributed ledger technology (DLT), and instruments on DLT remain financial instruments (Ley 6/2023, arts. 2.2 and 6.1).
What can change: how the register is kept, the size of each unit, and how transfers and interest payments are processed. What does not change: the borrower’s credit risk, the legal nature of the instrument and the fund rules. A token that is a financial instrument falls outside MiCA and stays under securities law (Regulation (EU) 2023/1114, art. 2(4)(a)). Nor does a token create liquidity on its own: private credit loans are rarely traded (IMF, Global Financial Stability Report, April 2024, chapter 2).
On 1 November 2026, RWA.xyz showed $8.33 billion of “distributed” and $41.62 billion of “represented” tokenized credit. The category covers all non-sovereign debt, and one home-equity loan token accounted for about $26.0 billion (RWA.xyz, consulted 1 November 2026).
Criterion: judge a tokenized credit product by the borrower, the documentation and who keeps the legal register. For the manager’s side, see fund tokenization.
The alternative for a European company: tokenized notes issued in Spain
Instead of borrowing from a fund, a company can issue bonds or notes to investors and represent them on DLT under the Spanish Securities Markets Law (Ley 6/2023). The issuer sets the terms in an issue document. It also designates an entity responsible for administering the entry and registration of the securities (ERIR), which must be authorised for the custody and administration of financial instruments (Ley 6/2023, arts. 7 and 8.4).
A group headquartered elsewhere in the EU can use this route through a Spanish issuing company, such as a subsidiary. A Spanish S.L. can issue bonds up to twice its own funds, unless they are secured by a mortgage, a pledge of securities, a public guarantee or a joint and several guarantee from a credit institution (Spanish Companies Act, art. 401.2).
An offer addressed only to qualified investors needs no prospectus. In Spain, certain exempt offers advertised to the public need an investment services entity to validate investor information and supervise marketing (Regulation (EU) 2017/1129, art. 1(4)(a); Ley 6/2023, art. 36.1).
As of 31 October 2026, the CNMV register listed one ERIR and 23 issues registered through it. Nineteen were bonds, worth €81.6 million of the €93.7 million total, and the latest date from 23 October 2026 (CNMV ERIR register, compiled 31 October 2026).
HokenFi is the software (SaaS) a company uses to issue tokenized bonds in Spain under Ley 6/2023, integrated with URSUS-3 Capital, A.V., S.A., the ERIR registered with the CNMV. HokenFi itself is not a regulated entity and does not provide advice.
Criterion: a note issue makes sense when you can reach enough investors directly or through a partner, and when setting your own terms is worth the preparation. See how to issue a security token in Spain and tokenized bonds in Europe.
Comparison: bank loan, private credit fund, listed bond and tokenized note
| Bank loan | Private credit fund | Listed bond | Tokenized note issuance in Spain | |
|---|---|---|---|---|
| Who lends | A bank | One fund or a small club | Many investors on a regulated market | Investors reached by the issuer or a partner |
| Instrument | Loan | Loan | Security | Security on DLT |
| Rate | Floating or fixed | Almost always floating | Set in the bond terms | Set in the issue document |
| Covenants | Negotiated with the bank | Leverage, interest cover, dividends, extra debt | Set in the bond terms | Set in the issue document |
| Public disclosure | None | None | Prospectus and ongoing disclosure | Issue document; prospectus unless exempt |
| Transferability | Limited | Rarely traded | Traded on the market | On the DLT register, if a buyer exists |
| Main rules | Bank prudential rules | AIFMD II | Prospectus Regulation | Ley 6/2023 and Prospectus Regulation |
Next step: shortlist two routes and compare their effective annual cost.
Worked example: a €10 million loan over five years
All figures are illustrative assumptions, not quotes or forecasts, with 3-month Euribor held at 2.50%.
- Bank loan: Euribor plus 1.25% (3.75%), close to the ECB’s 3.77% cost of borrowing for euro area companies in August 2026 (ECB, bank interest rate statistics, 1 October 2026). €2 million repaid yearly; assumed 0.50% fee.
- Private credit fund: Euribor plus 6.00% (8.50%), in line with BIS spreads for US direct loans. Repaid at year five; assumed 2.00% upfront fee.
- Tokenized note: fixed coupon, repaid at year five; assumed set-up costs of 3.00% and running costs of 0.25% a year.
| Bank loan | Private credit fund | |
|---|---|---|
| Interest over five years | €1,125,000 | €4,250,000 |
| Fees (assumed) | €50,000 | €200,000 |
| Total cost | €1,175,000 | €4,450,000 |
| Effective annual cost (on net proceeds) | 3.93% | 9.01% |
| Principal repaid before year five | €8,000,000 | €0 |
| Extra interest if Euribor rises one point | €300,000 | €500,000 |
The bank’s lower total partly reflects a shrinking balance, so compare effective annual costs. The note matches the fund’s 9.01% at a fixed coupon of about 8.0%. Each point below that saves €100,000 a year, and the coupon ignores Euribor.
Then test covenants. Suppose EBITDA is €4.0 million and the lender caps net debt at 3.5 times EBITDA. With €10 million of debt and no cash, leverage is 2.5 times. A 30% fall in EBITDA, to €2.8 million, lifts it to about 3.6 times: a breach.
Decision: if the bank lends the full amount on a schedule you can carry, it wins. If not, compare the fund’s effective cost with the coupon your investors would accept: here, the note wins below about 8%.
Mistakes to avoid
- Comparing headline margins instead of effective annual cost after fees.
- Planning an early refinancing without pricing the prepayment penalty.
- Assuming a token makes an illiquid loan easy to sell.
This content is educational and informative. It does not constitute legal, tax or investment advice. Check the current version of the rules in the official sources before making decisions.
HokenFi is a software and infrastructure provider; it does not provide regulated services (CASP, investment firm, financial advisor or ERIR). This article is for information only and is not financial or legal advice.
Frequently asked questions
Is private credit more expensive than a bank loan?
Usually, yes. The IMF describes private credit as generally costlier than bank lending, and BIS data on US deals put its spreads about three percentage points above leveraged loans. The premium pays for speed, tailored structures and a small group of lenders to negotiate with. Compare offers on effective annual cost, including upfront fees and any prepayment penalty, rather than on the headline margin.
Can a loan-originating fund in the EU be open-ended?
Only by exception. Under AIFMD II, a loan-originating AIF must be closed-ended by default. It can be open-ended if its manager demonstrates to the home supervisor that the fund's liquidity risk management is compatible with its investment strategy and redemption policy. ESMA was tasked with technical standards on those requirements, covering liquid assets, stress testing and an appropriate redemption policy.
Is tokenized private credit regulated by MiCA?
Not when the token is a financial instrument, such as a bond, a note or a fund unit. MiCA expressly excludes financial instruments from its scope, so securities law and fund rules keep applying. Tokenization changes how ownership is recorded and transferred. It does not change who bears the credit risk, how the issuer must disclose information or which rules govern the offer.
Can a Spanish S.L. issue tokenized bonds instead of taking a fund loan?
Yes. A Spanish limited company can issue bonds, and Ley 6/2023 lets them be represented on a distributed ledger, with an authorised entity administering the register. The total is capped at twice the company's own funds, unless the issue is secured by a mortgage, a securities pledge, a public guarantee or a joint and several guarantee from a credit institution. Equity is different: S.L. participations are not securities, so tokenized shares require an S.A.
