Direct lending

Direct lending refers to loans that a non-bank lender, in practice a debt fund, grants to a company without syndication. The lender originates the loan, negotiates the documentation with the company and its shareholder, then holds the loan until it is repaid. The European Central Bank defines private credit as bilaterally originated, non-syndicated loans that non-bank financial entities grant to non-financial corporations. In its Financial Stability Review of May 2026, it states that these loans carry a floating rate, that they finance unrated mid-sized companies and that a significant share finances acquisitions made by private equity funds. It estimates at about €100bn the assets managed in 2025 by private credit funds headquartered in the euro area, with average growth of about 14% a year since 2010. In France, 73% of the corporate private debt transactions of 2025 involved a private equity investor, according to France Invest and Deloitte. For the borrower, direct lending limits the counterparties to one fund or a few funds, and reduces the number of signatories to a waiver or an amendment. The ECB notes that the share of borrowers financed by private credit whose EBITDA does not cover their interest charge increased between 2018 and 2024. The interest coverage ratio warrants a sensitivity test in the business plan before signing.

A private equity fund buys a software company generating €25m of EBITDA. A single debt fund lends €125m in unitranche, or 5.0x EBITDA, at Euribor plus a margin, with a leverage covenant tested each quarter. The fund keeps the loan in its portfolio until it is repaid.

• The number of lenders and each one’s right to transfer its share
• The acquisition facility provided to finance future external growth transactions
• The covenants retained and how often they are tested
• The all-in cost: margin, OID, fees and call protection