What Is Private Credit and Why Should Americans Care?

TL;DR: The Center for American Progress says the Trump administration's proposal to encourage retirement-plan investment in private credit and other alternatives ignores shadow banking's role in the 2007-09 crisis. Private credit, which is lending to companies by funds instead of banks, had reached nearly $1.7 trillion, according to the Federal Reserve.

What did the Center for American Progress report?

The Center for American Progress (CAP) published a report titled "What Is Private Credit and Why Should Americans Care?" It responds to a Trump administration proposal to encourage investment of retirement plans in alternative assets such as private credit and private equity, according to CAP.

CAP's argument is that the administration's actions ignore the role the shadow banking sector and thinly regulated capital markets played in the 2007-09 financial crisis, per the same CAP report. CAP is a policy think tank with a stated position, so read the report as an argument and not as a neutral audit. Its descriptions of how the funds work are still useful, and they're checkable against filings.

What is private credit, in plain terms?

Private credit is a loan made by a fund to a company, usually one a bank isn't serving. The Federal Reserve says it is typically extended to middle-market firms with annual revenues between $10 million and $1 billion, and that lenders usually hold these loans until maturity or a refinancing event because there is no liquid secondary market for many of them.

So if you own a share of a fund holding these loans, the loans can't be sold quickly. The fund's promises about getting your money back have to be built around that.

Why can ordinary investors now reach it?

The doorway is the business development company, or BDC. According to CAP, Congress created BDCs in 1980 as a vehicle for ordinary investors to back small and midsize private companies that were unable to secure adequate funding from a traditional bank.

Nontraded BDCs are the newer version. CAP reports that this lending first emerged in 2009, after the financial crisis made bank loans hard to get. It also says growth took off in 2022 when interest rates began to rise, because many private credit loans have floating rates.

If you're accredited, you already have wider access. CAP summarizes the test as income above $200,000 ($300,000 jointly) for each of the past two years, or a net worth above $1 million excluding a primary residence.

How big is private credit, and how risky is it?

The Fed note says total private credit has grown exponentially, reaching nearly $1.7 trillion, comparable to leveraged loans at roughly $1.4 trillion and high-yield bonds at about $1.3 trillion. That figure comes from a note published in February 2024.

The sources split on how worried to be, and on who should be worried: the banks, the regulators, or the person holding the shares.

Question	What the source says	Source
Is regulation too thin?	The administration's actions ignore that shadow banking and the lack of regulation of certain capital markets were major factors in the 2007-09 crisis	CAP
Does it threaten the banking system?	Limited bank linkages, diversification within funds and a strong maturity structure mean little systemic risk	Columbia Business School, May 2026
Who absorbs losses?	Equity investors bear the brunt of fund losses	Columbia Business School
How are funds financed?	Equity averages 65% of the capital structure, debt 35%	Columbia Business School
Can you get out early?	Institutional funds lock money up for several years, sometimes as many as 10; some BDCs allow earlier withdrawals but often cap how much can be redeemed each period	Brookings

Columbia's researchers say the system is probably safe and that the equity holder is the one who gets hurt. CAP says gaps in regulation helped cause the last crisis. Both can hold at once. A fund can be sturdy for the banks around it and still be a poor deal for a shareholder who needs cash in year two.

What should accredited investors check before a private credit pitch?

Start with the exit. Redemption caps decide whether "periodic liquidity" is real, so find the cap and the period it applies to before anything else.

Next, find out what the fund files. BDCs register with the SEC. Form N-2 is the registration statement that describes the fund, its risks and its portfolio, and the periodic data, including redemption or tender results, sits in the fund's 10-K and 10-Q filings. Those documents are free, and they're written by the fund, not the person selling it.

Then look at what you'd be paid for the lockup. Our earlier coverage of private credit interval funds and the liquidity problem in private credit ETFs goes through how those promises hold up under stress. Our 2026 look at private credit yields and risks covers the return side.

Common mistakes

The first mistake is treating a yield as a return. A fund's stated yield is what it pays now. It says little about whether the loans behind it get repaid.

The second is reading "semi-liquid" as "liquid." Brookings notes that BDCs often limit what investors can redeem in each period, so a request to exit can be only partly filled.

The third is trusting one side of the debate. CAP wants tighter oversight, and the Columbia researchers see little systemic danger. Neither is selling you a fund, but neither is looking at your portfolio either.

FAQ

Why is private credit doing so well? Banks pulled back from business lending after 2008, according to Brookings, leaving room for funds. The Fed note says direct lending has beaten most comparable assets over the past decade, including by 2-4 percent over syndicated leveraged loans. CAP adds that floating rates helped once rates rose in 2022.

Is private credit in trouble? Analysts disagree. Columbia Business School researchers say funds pose little systemic risk, though shareholders can still take losses. CAP argues regulation is too thin. Both can be right.

Can ordinary investors buy private credit? Some can, through nontraded and publicly traded BDCs. Accredited investors have more options. Angel Investors Network doesn't sell or allocate any of these products.

What is a BDC? A business development company is a fund Congress created in 1980 so ordinary investors could back small and midsize private companies, according to CAP. It files regular reports with the SEC.

Before you put money into any private credit fund, pull its latest Form N-2 and its most recent 10-K or 10-Q from SEC EDGAR, find the redemption limit, and check the periodic reports for how much was actually redeemed. Then ask the seller what share of investors' requests were filled last quarter. For wider background, see our guide to how accredited investors reach private credit through BDCs. If you'd like checks like this on the next deal in your inbox, subscribe to the free AIN briefing.

Educational content only. Not investment, tax, or legal advice. Not an offer or solicitation to buy or sell securities. Past performance does not guarantee future results. Private-market investments are illiquid and involve risk of loss, including total loss of capital. Consult qualified advisers. Angel Investors Network is not a broker-dealer or investment adviser.