A Canadian mid-market owner who could not get a term sheet from their bank in 2019 can now get three from non-bank lenders in a fortnight. That is a genuine and consequential change in Canadian corporate finance. It is also being sold with a set of claims that partially contradict the industry's own published data, and the gap between the pitch and the numbers is where owners get into trouble.
Key Takeaway
Direct lending now matches the broadly syndicated loan market at roughly $1.5 to $2 trillion, with forecasts to $3 trillion by 2028, and US Federal Reserve analysis notes private credit has become comparable in size to the markets for bank loans and corporate bonds. In Canada the market remains comparatively small but is growing, driven partly by the potential retreat of the Big Six from mid-market corporate finance, infrastructure and real estate. The pricing is knowable: all-in yields of 11 to 13 percent on senior secured middle-market facilities, up from 9 to 10 percent two years prior. The three-part pitch of speed, flexibility and lighter oversight does not survive scrutiny evenly. Flexibility is real, particularly on amortization and covenant design. Speed is asserted more than demonstrated, since published execution windows for bank syndication and unitranche direct lending substantially overlap. And oversight is heavier, not lighter, because direct lenders hold entire positions and expect monthly reporting and often board observation rights.
The Structural Shift Behind The Sales Call
The scale of what has happened is worth establishing before evaluating any individual term sheet, because it explains why the calls are coming.
Cleary Gottlieb's 2026 outlook describes the private credit market as having reached a pivotal stage, with direct lending now matching the broadly syndicated loan market at $1.5 to $2 trillion in size and forecast to reach $3 trillion by 2028[1]. The US market expanded from $500 billion to $1.3 trillion over five years, and Federal Reserve analysis underscores this expansion, highlighting how private credit has become comparable in size to markets for bank loans and corporate bonds[2].
The asset class has also broadened well beyond senior loans, now extending to junior lending often with equity upside, mezzanine financing, infrastructure debt, real estate lending and asset-backed finance, serving the full spectrum from venture-backed growth firms to middle-market enterprises and large-cap corporates[1]. Cleary attributes growing CFO and treasurer interest to advantages including speed, flexibility and confidentiality[1], and this article tests the first two of those directly.
What Is Actually Happening In Canada
The Canadian picture differs from the US in ways that matter for a domestic borrower.
Canada's private credit market has experienced modest growth over the past year, but its share of the global market remains small, with activity increasing driven partly by foreign entrants and cross-border transactions[3]. Global private credit volumes reached approximately C$1.5 trillion in early 2024 with projections to C$2.8 trillion by 2028[3].
The most consequential Canadian dynamic is on the bank side. Global Legal Insights identifies the changing role of banks as one of the most significant drivers, noting that the potential retreat of Canada's Big Six banks from certain lending segments, particularly mid-market corporate finance, infrastructure and real estate, has created space for private credit providers[3]. For a Canadian owner, this reframes the decision: in some segments the choice may not be between a bank facility and a private credit facility, but between a private credit facility and nothing.
Distribution is also broadening domestically. National Bank Investments announced a partnership with Apollo to enhance access to private credit for accredited investors in Canada, through the NBI Apollo Private Credit Fund, which invests in Apollo Debt Solutions BDC, a US non-traded business development company focused on senior secured large corporate loans, broadly syndicated credit and middle-market lending[3]. A Canadian bank distributing a US manager's private credit product is a useful signal of where the domestic market is heading.
For scale context on the broader Canadian debt market, MNP reports Q1 2026 year-to-date loan issuance of $1.13 trillion, a 10% increase over Q1 2025, driven by demand for new money with real estate, construction and financial services leading, followed by retail and wholesale[4]. The same report notes that the uncertainty defining 2025 reached the Canadian economy in Q1 2026, with February's labour report showing unemployment rising to 6.7%, driven primarily by a reduction in full-time jobs largely in tariff-impacted sectors[4]. Borrowing conditions and operating conditions are moving in different directions, which is itself worth noting before adding leverage.
The Price: 11 To 13 Percent
The most useful number in this article, and the one a borrower should anchor on.
According to Lincoln International's Private Market Database, average spreads on middle-market direct loans increased by approximately 75 to 100 basis points between early 2023 and late 2024, with borrowers now commonly seeing all-in yields of 11 to 13 percent on senior secured facilities, compared to 9 to 10 percent two years prior[5].
Two points follow. First, this is senior secured pricing, not mezzanine or junior. An owner benchmarking a private credit proposal against a memory of bank pricing should understand that 11 to 13 percent on senior secured is the market, not an outlier or a penalty for a weak credit. Second, the direction has been upward. A borrower who financed privately in 2022 and is approaching a refinancing should model the refinancing at current market rather than at their existing rate, which is a distinct exercise from assuming a renewal.
The interest rate environment cuts both ways in a manner worth stating plainly: elevated rates increase borrowing costs and can heighten default risk among lower-quality borrowers, while enhancing returns for private credit lenders, especially those offering floating-rate instruments[3]. A floating-rate senior secured facility transfers rate risk to the borrower, and an 11 to 13 percent all-in yield today is not a fixed obligation unless it is contractually fixed.
The Speed Claim Does Not Survive Its Own Numbers
This is the section where the published data and the marketing part company, and to our knowledge the point is not widely made.
Speed is among the most consistently cited advantages of private credit, including in Cleary's list of what attracts CFOs and treasurers[1]. But when the comparison is expressed in actual timelines, the advantage largely disappears. Industry analysis reports a typical execution window in which bank syndication often runs eight to twelve weeks, while unitranche direct lending has closed in a widely cited sixty-to-ninety-day range and frequently faster for well-prepared borrowers[6].
Eight to twelve weeks is fifty-six to eighty-four days. Sixty to ninety days is, at its fast end, slower than the bank range's fast end, and at its slow end slower than the bank range's slow end. On the figures as published, unitranche direct lending is not faster than bank syndication; the ranges overlap almost entirely and the direct lending range is nominally shifted later.
Three honest qualifications. The same source notes direct lending is frequently faster for well-prepared borrowers[6], so the distribution may differ even where the quoted ranges do not. Certainty of execution is a distinct advantage from raw speed: a syndication that must be sold to a group of participants carries completion risk that a single-lender unitranche does not, and a borrower may rationally prefer a slower process with a higher probability of closing. And where a bank has declined outright, as the Canadian mid-market retreat suggests is happening in some segments[3], the relevant comparison is not timeline at all.
The practical instruction is narrow but useful: if a lender is pricing at 11 to 13 percent and justifying the premium substantially on speed, ask for their actual closing timeline in writing and compare it against a bank timeline for the same facility. The premium may still be worth paying, but it should be justified by something the data supports.
Covenants: The Real Difference
Here the flexibility claim holds, and the mechanism is worth understanding rather than merely accepting.
Banks lean toward strict quarterly maintenance tests, while direct lenders increasingly favour incurrence-based or single-covenant structures[6]. The distinction is substantive. A maintenance covenant is tested every quarter regardless of what the business does; a deterioration in trading trips it. An incurrence covenant is tested only when the borrower takes a specified action, such as incurring further debt or making a distribution. A business that expects volatility but does not plan to take those actions is materially safer under an incurrence structure.
Private credit lenders can also evaluate borrowers case by case, offer bespoke loan structures, create flexible covenants and make relationship-driven lending decisions, with the illustrative example that a seasonal business might negotiate covenant tests tied to peak sales months rather than uniform quarterly targets[2]. For genuinely seasonal Canadian businesses, agriculture, tourism, construction in northern climates, this is not a marginal accommodation but a structural fit that a standardized bank product cannot easily replicate.
One caution belongs alongside the benefit. The rise of covenant-lite structures can reduce lender protections[2], which is framed in that source as a risk to the lender and to investors in the asset class. Borrowers should recognize the corollary: covenants exist partly as an early-warning system that forces a conversation before a situation becomes unrecoverable, and a borrower who removes the tripwire also removes the prompt to renegotiate while renegotiation is still cheap.
Amortization And Why It May Matter More Than Rate
An underweighted structural difference that can dominate the rate comparison in cash terms.
Banks usually require standard amortization from year one, while direct lenders more often extend interest-only periods that free up cash for growth[6].
For a growing business, this is frequently the decisive term. Consider the cash difference between a facility requiring principal repayment from month one and one requiring interest only for two or three years. On a mid-seven-figure facility, deferred amortization can free annual cash flow of a magnitude that materially exceeds the incremental interest cost of the higher rate. A borrower comparing an 8 percent amortizing bank facility against a 12 percent interest-only private facility purely on rate is comparing the wrong quantity; the relevant comparison is total scheduled cash outflow over the planning horizon, and the answer is genuinely fact-dependent.
The corresponding risk is equally structural. Interest-only means the principal is still there at maturity, and it must be refinanced or repaid from an exit. A business that used deferred amortization to fund growth and did not achieve the growth arrives at maturity with the original principal, higher prevailing rates, and a weaker credit profile. Interest-only periods convert an amortization obligation into refinancing risk, which is a different risk, not an absent one.
The Oversight Inversion
This is the finding most likely to surprise a Canadian owner, and it inverts a common assumption.
Because direct lenders hold entire positions, they expect ongoing access to management teams, detailed monthly or quarterly reporting, and often board observation rights. As the analysis puts it directly, this is not passive capital, and SME owners accustomed to limited bank oversight should anticipate a more hands-on lender relationship[5].
The mechanism is concentration. A syndicated bank facility distributes exposure across participants, none of whom holds enough to justify intensive monitoring, and the agent bank's oversight is correspondingly procedural. A direct lender holding the entire position has both the incentive and the standing to monitor closely, and will. The same concentration produces the counterpart benefit the source also notes: alignment means direct lenders are often more willing to work through covenant amendments or short-term performance issues, though it also means they have concentrated exposure and will negotiate hard on protections upfront[5].
An owner who values operational autonomy should price this honestly. Fewer covenants does not mean less scrutiny; in the direct lending model it frequently means the scrutiny arrives through relationship and reporting rather than through a quarterly test. Monthly reporting packages and a board observer are a real change in how a private company operates, and for some owners that cost exceeds several hundred basis points of rate.
Where We Are In The Cycle
Timing affects terms, and the current position is documented.
Lord Abbett's 2026 midyear outlook describes the market as having reset in a more lender-friendly direction. Private credit entered the year after a long, tight period in which capital markets activity had been muted while fundraising remained strong, leaving a lot of capital chasing a limited number of deals, an environment that favoured borrowers and ground spreads tighter[7]. At midyear, the assessment is that stronger deal flow, more selective capital and better documentation have improved the setup for new loans[7], with capital more selective, spreads wider, and covenants and documentation improving[7].
Corroborating the direction, industry analysis citing the same outlook reports direct lending spreads widening by roughly 50 to 100 basis points since late 2025, alongside a return to stronger lender protections after the period of excess capital[6].
Translated for a borrower: 2026 is a less favourable year to negotiate a private credit facility than 2024 was. Spreads are wider, documentation is tighter, and lenders are choosier. A borrower with flexibility on timing should factor this in; a borrower without it should at least not anchor expectations on terms a peer obtained eighteen months ago. Lord Abbett also expects the second half of 2026 to be defined by dispersion[7], which for a borrower means shopping the deal matters more than usual because manager terms are diverging.
What Regulators Are Watching
A borrower's counterparty risk is worth a moment, because the asset class is now large enough to attract systemic attention.
The Financial Stability Board published a Report on Vulnerabilities in Private Credit dated 6 May 2026, which among other things documents the growth of the private credit CLO market, also referred to as middle market CLOs, with total amount outstanding estimated at $155 billion as of October 2025, representing around 16% of the $977 billion US CLO market[8]. The FSB report also references academic work including Haque, Mayer and Stefanescu on private debt versus bank debt in corporate borrowing, and Chernenko, Ialenti and Scharfstein's March 2026 SSRN working paper on bank capital and the growth of private credit[8].
Separately, industry commentary notes the Federal Reserve and SEC have signalled interest in the growth of private credit, and that any new disclosure or capital requirements could affect fund economics and, by extension, pricing to borrowers[5].
The borrower-relevant implication is not that private credit is unsafe, but that a lender's own funding model is a variable in your credit relationship. A lender that securitizes its loans into CLOs, or that faces new capital or disclosure requirements, may behave differently at your renewal than at your origination. Asking a prospective lender about the stability and structure of its own funding is a reasonable diligence question that very few mid-market borrowers think to ask.
When Private Credit Genuinely Wins
Synthesizing the evidence rather than the pitch, private credit has a strong case in identifiable situations.
When the bank has declined or exited the segment. Given the documented Big Six retreat from parts of Canadian mid-market corporate finance, infrastructure and real estate[3], this is increasingly the actual situation rather than a hypothetical.
When cash flow timing matters more than rate. Interest-only structures that a bank will not offer can be worth more than the rate differential for a business with a credible growth plan and a defined exit or refinancing path.
When the business does not fit a standard covenant box. Seasonality, lumpy revenue recognition, or an unusual working capital cycle are exactly the conditions bespoke covenant design addresses and standardized bank products handle badly.
When certainty of execution is worth a premium. Single-lender execution removes syndication risk, which for a borrower financing an acquisition with a fixed closing date can be worth more than either speed or price.
When confidentiality has value. Cleary lists confidentiality among the advantages[1], and for a business whose financing terms would be commercially sensitive if circulated to a syndicate, this is a real consideration.
When It Does Not
When a bank will lend and the business is stable and amortizing comfortably. Paying 11 to 13 percent to replace an available bank facility is value destruction absent a specific structural reason.
When the owner will not tolerate the monitoring. Monthly reporting and board observation rights are a genuine cost, and an owner who resents them will have a bad relationship with a lender they cannot easily replace.
When interest-only is being used to paper over insufficient cash generation. Deferring amortization does not create cash; it relocates the obligation to maturity and adds refinancing risk on top.
When the borrower is at the weaker end of credit quality. Elevated rates heighten default risk among lower-quality borrowers[3], and a borrower who can only obtain private credit because their credit is impaired is paying a rate that reflects that impairment, which compounds it.
A Worked Case: The Interest-Only Trade
A Canadian mid-market manufacturer needed roughly $8 million to fund an equipment expansion with a two-year ramp before the new capacity generated meaningful revenue. The illustrative comparison below is constructed to demonstrate the analysis rather than reported from a specific engagement.
Bank option. A term facility at a materially lower rate, but amortizing from year one on a standard schedule, with quarterly maintenance covenants tested against EBITDA that the expansion would temporarily depress during the ramp.
Private credit option. A senior secured unitranche at an all-in yield within the 11 to 13 percent band[5], interest-only for two years, with an incurrence-based covenant package[6], monthly reporting and a board observer.
Compared on rate, the bank wins decisively. Compared on scheduled cash outflow across the two-year ramp, the private facility preserved materially more cash at precisely the point the business needed it, and the incurrence structure removed the risk of tripping a maintenance test on ramp-depressed EBITDA, which was the outcome that would actually have been catastrophic.
Three things made the trade defensible rather than reckless. The business had a specific, dated plan for what would repay or refinance the principal at maturity. The owner had explicitly accepted the monitoring cost. And the analysis was run on total cash outflow and covenant risk, not on rate. Absent any one of those, the higher-cost option would have been the wrong one, and the same arithmetic that justified it would have condemned it.
The Diligence You Owe The Lender's Diligence
A closing observation on process. When a private equity buyer finances a deal through a direct lender rather than a bank, diligence changes shape[6], and the same is true for an operating borrower. A direct lender underwriting a whole position conducts deeper diligence than a bank participating in a syndicate, and expects the borrower to sustain that engagement afterward.
The reciprocal, which borrowers rarely perform, is diligence on the lender. Reasonable questions include: how is the fund funded and does it securitize its loans; what is its history of behaviour with borrowers who breached covenants; who specifically will hold the relationship and will they still be there in three years; what are the amendment and consent mechanics if terms need to change; and what happens to the facility if the fund itself faces redemptions or a strategy change. Private credit is characterized by limited liquidity and less transparency around valuations because loans are not priced daily[2], and those characteristics describe the lender's position as well as the investor's.
The Limits Of This Analysis
Several caveats matter. Most pricing, spread and timeline data cited here originates from US market sources including Lincoln International's database and US-oriented industry analysis, and while the Canadian market is influenced by these dynamics and increasingly served by US managers, Canadian-specific pricing may differ and was not separately established. The 11 to 13 percent all-in yield range reflects senior secured middle-market facilities at the time of the cited reporting and moves with rates and cycle. The observation about execution timelines is drawn from a single industry source's characterization of typical windows and is offered as a reason to test the speed claim rather than as a definitive finding that direct lending is slower. The worked case uses constructed figures. Finally, this is a general analysis and not financing advice; capital structure decisions should be made with a qualified advisor against your actual credit profile, covenant capacity and refinancing plan.
Frequently Asked Questions
What does private credit actually cost?
Is private credit really faster than a bank?
Do private lenders really impose fewer covenants?
What is the oversight trade-off?
Why are Canadian businesses seeing more of these offers?
Is 2026 a good time to negotiate?
References
- Cleary Gottlieb. (2026, January 8). Outlook For Private Credit In 2026, from Selected Issues for Boards of Directors in 2026. clearygottlieb.com/.../outlook-for-private-credit-in-2026
- Creative Planning. (2026, March 25). The Rise Of Private Credit: 2026 Market Trends And Growth Outlook, citing Federal Reserve analysis on market size and describing covenant flexibility and liquidity risks. creativeplanning.com/insights/high-net-worth/rising-popularity-private-credit
- Global Legal Insights. (2025, November 4). Private Credit Laws And Regulations 2026: Canada, on Canadian market size, the Big Six retreat, and the NBI Apollo partnership. globallegalinsights.com/practice-areas/private-credit-laws-and-regulations/canada
- MNP. (2026, April 13). Canadian Debt Market: Key Trends And Insights, Q1 2026. mnp.ca/en/insights/directory/canadian-debt-markets-key-trends-and-insights-q1-2026
- Growth Shuttle. (2026, July 5). Private Credit Trends: What Mid-Market Sponsors And CEOs Should Watch, citing Lincoln International's Private Market Database on spreads and yields, and Moody's on default rates. growthshuttle.com/private-credit-trends-mid-market-sponsors-ceos
- Aspirations Group. (2026). ACG Strategic Insights: Private Credit Has Changed How Mid-Market Deals Get Done, on execution windows, covenant posture and amortization. aspirations-group.com/post/private-credit-has-changed-how-mid-market-deals-get-done
- Lord Abbett. (2026, June 4). 2026 Midyear Investment Outlook: Private Credit's Lender-Friendly Reset. lordabbett.com/.../2026-midyear-investment-outlook-private-credits-lender-friendly-reset
- Financial Stability Board. (2026, May 6). Report On Vulnerabilities In Private Credit, including private credit CLO market data and references to Haque, Mayer & Stefanescu (2025) and Chernenko, Ialenti & Scharfstein (2026). fsb.org/uploads/P060526.pdf
This article discusses debt market data and industry analysis and is provided for general informational purposes. It is not financing, investment or legal advice. Much of the underlying pricing data is US-sourced; Canadian terms may differ. Capital structure decisions should be made with qualified advisors against your specific credit profile and refinancing plan.