Private Credit vs Private Equity: The Definitive 2026 Guide to How They Differ
By CT Acquisitions Editorial Team, reviewed by senior M&A advisors. Last reviewed: June 2026.
Private credit vs private equity is the difference between lending to a company and owning it. Private credit funds extend loans and collect interest, typically SOFR plus 500 to 650 basis points in 2026, targeting 9 to 13 percent net returns with contractual downside protection. Private equity funds buy equity stakes, control the company or a meaningful minority, and target 15 to 22 percent gross IRR through operational improvement, multiple expansion, and eventual sale. Both live inside the same private markets universe, but they sit on opposite sides of the balance sheet, carry different risk, and increasingly work together on the same deals.
Private credit vs private equity: the 60-second answer
Private credit is non-bank lending to private companies, structured as senior secured loans, unitranche facilities, or subordinated debt, held to maturity by a fund, and repaid with interest. Private equity is the purchase of ownership stakes in private companies through leveraged buyouts, growth investments, or minority recaps, with returns realized through eventual sale, IPO, or recapitalization. The critical distinction: private credit lenders get paid before private equity owners, but their upside is capped at the loan yield.
Head-to-head comparison table
| Attribute | Private Credit | Private Equity |
|---|---|---|
| Position in capital stack | Senior or subordinated debt | Common or preferred equity |
| Return target (2026, net of fees) | 9 to 13 percent | 15 to 22 percent gross IRR |
| Return source | Contractual interest, origination fees, prepayment penalties | Operational improvement, multiple expansion, exit |
| Downside protection | Collateral, covenants, seniority | Diversification, sponsor skill |
| Ownership stake | None (in most cases) | Control or significant minority |
| Typical hold period | 3 to 7 years (loan tenor) | 4 to 7 years |
| Fund structure | Closed-end drawdown, evergreen BDC, interval fund | Closed-end drawdown (10 year life) |
| Fee structure | 0.75 to 1.5 percent management, 15 percent carry over 6 to 8 percent hurdle | 2 percent management, 20 percent carry over 8 percent hurdle |
| Global AUM (year-end 2025) | Approximately 1.7 trillion USD (Preqin) | Approximately 8.2 trillion USD (Preqin) |
| Leaders | Ares, Apollo, Blackstone Credit, HPS, Blue Owl | Blackstone, KKR, Carlyle, Apollo, EQT |
Sources: Preqin Global Private Debt Report 2025, PitchBook 2024 Annual Private Fund Strategies Report.
What is private credit?
Private credit is non-bank lending to private (usually middle-market) companies, extended directly by asset managers to borrowers, held on the manager’s balance sheet or in a closed-end fund rather than syndicated to public markets. The asset class covers senior secured loans, unitranche facilities that blend senior and subordinated debt into a single tranche, second-lien loans, mezzanine debt, and specialty finance verticals such as asset-based lending and litigation finance.
How a private credit deal works
A private credit manager, say Ares Capital or Golub Capital, originates a loan directly to a private company, often financing a private equity sponsor’s leveraged buyout. The manager underwrites the credit, negotiates covenants, funds the loan from a mix of fund equity and leverage, and collects a floating interest rate over the loan’s 5 to 7 year term. Interest typically runs at the Secured Overnight Financing Rate (SOFR) plus a spread of 500 to 650 basis points in 2026, per LSTA Quarterly Loan Market Review Q1 2026. Origination fees add another 2 to 3 percent upfront.
The three main private credit strategies
- Direct lending (senior secured / unitranche): The dominant sub-strategy, roughly 65 percent of private credit AUM per Preqin. First-lien loans to sponsor-backed middle-market companies.
- Mezzanine debt: Subordinated loans that sit between senior debt and equity, often with equity warrants attached. Returns run 12 to 16 percent per Cambridge Associates private credit benchmarks, with a 3 to 5 percent equity kicker in many structures.
- Special situations and distressed: Rescue financing, DIP loans, and stressed credit. Higher yields (15 to 20 percent) and higher risk. Firms like Oaktree, Sixth Street, and Fortress lead here.
Who provides private credit
The largest private credit managers as of 2026 include:
- Ares Management: Approximately 360 billion USD in credit AUM per Ares investor relations disclosures. Ares Capital Corporation (ARCC) is the largest publicly traded BDC by NAV.
- Apollo Global Management: Roughly 500 billion USD in credit AUM through Apollo and Athene.
- Blackstone Credit & Insurance (BXCI): Approximately 380 billion USD, including BCRED (Blackstone Private Credit Fund), the largest non-traded BDC.
- HPS Investment Partners: Around 150 billion USD; acquired by BlackRock in a 12 billion USD deal announced December 2024 and closed 2025, detailed in BlackRock’s press release.
- Blue Owl Capital: Roughly 260 billion USD, with a focus on upper middle-market direct lending per Blue Owl investor materials.
Data sourced from firm SEC 10-K filings via EDGAR and public disclosures.
What is private equity?
Private equity is the purchase of ownership stakes in private companies (or the take-private of public companies) by professionally managed funds, with the goal of improving the company and selling it at a higher valuation. PE funds pool capital from institutional limited partners such as pension funds, sovereign wealth funds, endowments, insurance companies, and family offices, and deploy it over a 4 to 6 year investment period followed by a 4 to 6 year harvest period.
The three main private equity strategies
- Leveraged buyouts (LBOs): The classic PE strategy. Buy a mature, cash-generative business, finance 50 to 65 percent of the purchase price with debt, improve operations over 4 to 7 years, and sell at a higher multiple. See our LBO meaning explainer and how to build a leveraged buyout model from scratch.
- Growth equity: Minority investments in profitable, scaling companies. Less leverage, more equity, longer holds. Firms like General Atlantic, TA Associates, and Summit Partners dominate.
- Venture capital: Early-stage equity in unproven companies. Higher failure rates, higher potential returns. Often broken out separately from PE, but Preqin groups it under the broader private equity umbrella.
How a PE deal generates return
A private equity fund’s return breaks into three components: operational improvement (EBITDA growth from margin expansion, revenue growth, tuck-in acquisitions), multiple expansion (selling at a higher EV/EBITDA multiple than the purchase price, though this has been rare since 2022), and deleveraging (paying down acquisition debt with free cash flow, which transfers value from debtholders to equity holders). Bain & Company’s Global Private Equity Report 2025 found that between 2020 and 2024, multiple expansion contributed less than 5 percent of median PE returns, down from roughly 25 percent in the 2014 to 2019 period.
Who runs private equity
The largest private equity firms by AUM as of 2026:
- Blackstone: Approximately 1.1 trillion USD total AUM per Blackstone investor relations, with roughly 340 billion USD in PE strategies including corporate PE, tactical opportunities, and infrastructure.
- KKR: Approximately 620 billion USD total AUM per KKR investor relations, with roughly 210 billion USD in private equity.
- Carlyle Group: Approximately 440 billion USD total AUM per Carlyle investor relations, roughly 170 billion USD in corporate PE.
- Apollo Global Management: Approximately 750 billion USD total per Apollo investor relations, split across PE, credit, and Athene (retirement services).
- EQT AB: Approximately 250 billion USD per EQT shareholder disclosures, headquartered in Stockholm, dominant in European buyouts.
Figures cross-referenced against Q1 2026 10-Q filings.
Position in the capital stack: debt vs equity
The most consequential difference between private credit and private equity is where each sits in the capital stack. When a company generates cash, that cash flows in a strict priority order: senior secured debt gets paid first, then subordinated debt, then preferred equity, then common equity. When a company fails, the same order determines who gets what from a liquidation or restructuring.
Capital stack, top to bottom
| Layer | Instrument | Held by | Priority |
|---|---|---|---|
| 1 | Senior secured revolver + term loan | Banks or private credit funds | Highest |
| 2 | Unitranche or first-lien term loan | Private credit funds (Ares, Golub, Blackstone Credit) | Highest (blended) |
| 3 | Second-lien loans | Private credit or public leveraged loan investors | High |
| 4 | Mezzanine debt | Private credit mezz funds | Subordinated |
| 5 | Preferred equity | Growth equity or private equity | Junior to debt |
| 6 | Common equity | Private equity, founders, management | Last |
Private credit funds occupy layers 1 through 4; private equity funds sit at layers 5 and 6. The private credit fund’s return is contractually fixed (interest rate plus fees) and legally protected by collateral and covenants. The private equity fund has no cap on the upside but bears the first-loss risk if the company underperforms.
What seniority means in practice
In a hypothetical downside case where a company enters Chapter 11 reorganization, the first-lien lender recovers 60 to 85 cents on the dollar on average per Moody’s Ultimate Recovery Database and S&P Global Ratings default and recovery studies. Mezzanine and second-lien recover 20 to 45 cents. Equity holders, in most restructurings, are wiped out entirely and receive zero. This is why private credit is described as “senior in the capital stack” and private equity as “junior.”
Return profiles: what private credit and private equity actually pay in 2026
Private credit and private equity now target return bands that overlap on paper but diverge on distribution. Private credit’s returns are heavily contractual and paid quarterly; private equity’s returns are back-loaded and dependent on exit. In 2026, floating-rate private credit is paying more cash yield than at any point since 2007, while private equity distributions have slowed to their lowest pace since 2010.
Private credit yields in 2026 (representative BDC data)
| BDC / Fund | Manager | Weighted Avg Yield on Debt Investments (Q4 2025) | Discount / Premium to NAV (mid-2026) |
|---|---|---|---|
| Ares Capital Corporation (ARCC) | Ares | 10.8 percent | +3 percent (premium) |
| Blackstone Private Credit Fund (BCRED) | Blackstone | 11.2 percent | Non-traded, quarterly repurchases |
| Blue Owl Capital Corp (OBDC) | Blue Owl | 11.4 percent | -2 percent |
| Blackstone Secured Lending Fund (BXSL) | Blackstone | 10.9 percent | +5 percent |
| FS KKR Capital (FSK) | FS/KKR | 11.6 percent | -17 percent (as of Q1 2026) |
| Owl Rock (Blue Owl Tech Finance) | Blue Owl | 11.5 percent | Non-traded |
Data sourced from BDC 10-Q filings for Q4 2025 and Q1 2026. The FSK NAV markdown of 9.9 percent in 2025 (down from 24.46 USD to 22.03 USD per share) and its persistent discount reflect the credit-quality concerns that hit certain 2019 to 2021 vintage portfolios, discussed in FSK’s SEC filings.
Private equity return dispersion in 2026
Private equity’s median net IRR for 2015 to 2020 vintage funds sits at approximately 15.4 percent per Preqin’s 2025 Global Private Equity Report, but the dispersion between top and bottom quartiles is wider than in any other private asset class. Top-quartile funds returned 22 percent net IRR; bottom-quartile funds returned less than 6 percent. Bain’s 2025 report noted that median MOIC compressed from 2.4x pre-2022 to 1.7x for 2020 to 2022 vintages, driven by higher entry multiples and slower exit environments. See McKinsey’s Global Private Markets Review for parallel cross-check on distribution slowdown.
The 2026 twist: private credit yields are competing with private equity’s cash returns
Because private credit pays a floating rate near 11 percent net of fees, while median private equity DPI (distributions to paid-in) for 2018 to 2020 vintages has slowed to 0.3x by year five (Preqin, Q4 2025), some allocators are treating private credit as a partial substitute for private equity in cash-yield mandates. Ares CEO Michael Arougheti made this point directly on the firm’s Q4 2025 earnings call: “The current cash yield on our senior loan portfolio exceeds the median cash DPI of the 2019 to 2021 PE vintage. That is a first.”
Risk profiles: downside protection, seniority, dilution
Private credit risk lives in credit deterioration, covenant erosion, and interest rate mismatch. Private equity risk lives in operational underperformance, multiple compression, and exit market conditions. Both asset classes lost capital in 2022 to 2024, but they lost it in different ways.
Private credit risk sources
- Credit deterioration: Borrower EBITDA falls, coverage ratios tighten, and payment-in-kind (PIK) interest builds. Approximately 8 to 10 percent of private credit loans as of Q4 2025 were on non-accrual per S&P Global Ratings’ BDC scorecard surveillance.
- Covenant erosion: The rise of “covenant-lite” (cov-lite) unitranche loans, now roughly 70 percent of new US direct lending issuance per LSTA, means lenders have less early warning when a borrower is in trouble. The Federal Reserve’s Financial Stability Report flagged this as a systemic watchpoint in November 2025.
- Interest rate mismatch: As SOFR falls, floating-rate loans earn less. If loans were funded with fixed-rate leverage, spreads compress.
- Amend-and-extend fatigue: When 2019 to 2021 vintage unitranche loans mature, borrowers with weaker credit face refinancing risk. FSK’s 2025 markdowns reflect this dynamic.
Private equity risk sources
- Operational underperformance: The portfolio company misses budget, and the fund cannot grow EBITDA fast enough to justify the entry multiple.
- Multiple compression: Entry multiples of 12 to 13x EBITDA in 2021 must be exited at similar or higher multiples to preserve MOIC. In 2024 to 2025, median exit multiples fell to 10 to 11x per PitchBook’s 2024 Annual US PE Breakdown.
- Illiquidity and DPI drag: LPs are locked in for 10 years and cannot exit without selling in the secondary market at a discount. Median secondary market discounts for PE stakes hit 15 percent in 2024 and narrowed to 8 percent in 2025 per Jefferies’ Global Secondary Market Review H2 2025.
- GP-led continuation vehicles (CVs): Increasingly used to hold assets past the fund’s 10-year life. Discount to reported NAV averaged 5 percent in Vista and Thoma Bravo CVs of 2024 to 2025, per Preqin’s 2025 secondaries data and Evercore GP-led secondaries reviews.
Comparing loss experience
| Loss metric | Private Credit (2020 to 2024 vintages) | Private Equity (2020 to 2022 vintages) |
|---|---|---|
| Realized loss rate (annualized) | 0.6 to 1.2 percent per S&P Global LCD data | Not fully realized; unrealized markdowns 5 to 15 percent |
| Recovery rate on defaults | 60 to 85 percent (first lien) | Not applicable (equity) |
| NAV volatility | Low (2 to 4 percent std dev) | Higher (8 to 12 percent std dev, when marked) |
Fund structures: closed-end drawdown, evergreen BDCs, retail-perpetual
Private equity has one dominant structure: the closed-end drawdown fund. Private credit has three that matter: closed-end drawdown funds for institutional LPs, business development companies (BDCs) that trade publicly or as non-traded interval funds, and increasingly, retail-perpetual vehicles designed for high-net-worth individuals.
Closed-end drawdown fund (both PC and PE)
LPs commit capital, the GP calls it over a 4 to 6 year investment period, invests it, and returns it over the following 4 to 6 years. Fund life is typically 10 to 12 years with 2 to 3 one-year extensions. Illiquid: LPs cannot exit without selling in the secondary market. Fees: 1.5 to 2 percent management on committed capital during investment period, then on invested capital; 20 percent carry over an 8 percent hurdle.
Business development company (BDC), publicly traded
A regulated investment company under the 1940 Investment Company Act, must distribute 90 percent of taxable income to shareholders, limited leverage (150 percent asset coverage ratio). Publicly listed, so shares can trade at premiums or discounts to NAV. Examples: ARCC, OBDC, BXSL, MAIN. Investor base skews retail plus income-seeking institutions.
Non-traded BDC (perpetual, semi-liquid)
Same regulatory structure, but shares are not listed. Investors buy in at NAV and can request quarterly repurchases up to 5 percent of NAV per quarter. Examples: BCRED (Blackstone), BXPE (Blackstone Private Equity Strategies), BREIT-analog structures for credit. Robert A. Stanger & Co. reporting shows non-traded BDCs pulled in approximately 45 billion USD of retail flows in 2024, a record year, cross-checked with Preqin.
Interval fund and tender offer fund
Registered under the 1940 Act, quarterly liquidity windows, typically for lower-return-target credit products (roughly 6 to 9 percent net). Growing rapidly as broker-dealers push private credit to mass-affluent investors.
Fee structures: management + carry vs origination + spread
Private equity has a simple fee model: 2 percent management on committed capital and 20 percent carry over an 8 percent hurdle. Private credit’s fee model is more varied because the underlying instrument, a loan, throws off contractual cash. Fee rates have compressed as competition among managers has intensified.
Private equity fee structure (industry standard)
- Management fee: 1.5 to 2 percent per year on committed capital during investment period; steps down to invested capital afterwards.
- Carried interest: 20 percent of profits above an 8 percent preferred return (the “hurdle” or “preferred return”), often with a full catch-up.
- Transaction and monitoring fees: Charged to portfolio companies, historically 100 percent offset against LP management fees since 2015 SEC enforcement actions against KKR and Blackstone.
Private credit fee structure (typical direct lending fund)
- Management fee: 0.75 to 1.5 percent, often on invested capital or NAV.
- Carried interest: 10 to 15 percent, over a 6 to 8 percent hurdle. Some funds have no carry on income and 15 percent on capital gains.
- Origination fees: 2 to 3 percent upfront on each loan, split between LPs and GPs per LPA.
- Prepayment fees: 1 to 2 percent if the borrower refinances within the first two years.
Effective net-of-fee returns for institutional LPs run roughly 400 to 500 basis points below gross for both asset classes, per Cambridge Associates 2025 fund benchmark data.
AUM and market growth: the 1.7 trillion USD PC vs 8.2 trillion USD PE picture
Private equity remains the larger asset class by AUM, but private credit is growing roughly three times faster and is projected to double in size by 2029. The gap between the two is narrowing as banks continue to retreat from middle-market lending and PE sponsors turn to direct lenders for LBO financing.
AUM trajectory
| Year | Private Credit AUM (Preqin) | Private Equity AUM (Preqin) |
|---|---|---|
| 2015 | 0.5 trillion USD | 3.9 trillion USD |
| 2020 | 0.9 trillion USD | 5.6 trillion USD |
| 2023 | 1.5 trillion USD | 7.4 trillion USD |
| 2025 (est) | 1.7 trillion USD | 8.2 trillion USD |
| 2029 (forecast) | 3.5 trillion USD | 10.5 trillion USD |
Sources: Preqin Global Private Debt Report 2025, Preqin Global Private Equity Report 2025, BlackRock investor day October 2024.
Why private credit is growing so fast
- Bank retreat: Post-2008 Basel III capital requirements and the 2023 regional banking stress made middle-market corporate lending unprofitable for many banks per the BIS Basel Framework. Direct lenders filled the gap.
- Floating-rate cash yield: In a higher-for-longer rate environment, private credit’s floating SOFR-linked coupons compare favorably to fixed-income alternatives. See the Federal Reserve Bank of New York’s SOFR data.
- Insurance company demand: Life insurers, especially those owned by or partnered with private credit managers (Apollo-Athene, KKR-Global Atlantic, Blackstone-Corebridge), need high-yield, long-duration credit to match their liabilities.
- Retail wealth-channel distribution: Non-traded BDCs and interval funds gave the wirehouse and RIA channels a mass-market way to access private credit, tracked in SEC Investment Management fund flow filings.
The named leaders: who runs PC and who runs PE
The largest firms in private credit and private equity now overlap heavily. Apollo, Blackstone, KKR, and Ares each run material businesses in both, blurring the historical distinction between “credit shops” and “equity shops.”
Private credit leaders
| Firm | Credit AUM (2026) | Signature strategy |
|---|---|---|
| Apollo Global Management | 500 billion USD | Direct lending, Athene-anchored insurance credit |
| Blackstone Credit & Insurance | 380 billion USD | Direct lending (BCRED), asset-based finance, insurance |
| Ares Management | 360 billion USD | Direct lending (ARCC), commercial finance, real estate debt |
| Blue Owl Capital | 260 billion USD | Upper middle-market direct lending |
| HPS (BlackRock) | 150 billion USD | Direct lending, mezzanine, junior capital |
| Golub Capital | 75 billion USD | Middle-market unitranche |
| Sixth Street | 85 billion USD | Special situations, growth credit |
| Oaktree Capital | 195 billion USD (across strategies) | Distressed debt, opportunistic credit |
Private equity leaders
| Firm | PE AUM (2026) | Signature strategy |
|---|---|---|
| Blackstone | 340 billion USD | Large corporate PE, tactical opportunities |
| KKR | 210 billion USD | Global buyouts, Asia focus |
| Carlyle | 170 billion USD | Corporate PE, US and Europe buyouts |
| Apollo | 110 billion USD (PE only) | Distressed-for-control, value buyouts |
| EQT AB | 250 billion USD (total) | European buyouts, infrastructure |
| CVC Capital | 210 billion USD | European upper middle-market |
| Advent International | 100 billion USD | Cross-sector buyouts |
| Thoma Bravo | 170 billion USD | Software buyouts |
| Vista Equity Partners | 105 billion USD | Enterprise software buyouts |
All figures per firm public disclosures Q4 2025 or Q1 2026.
Where they collide: private credit financing private equity LBOs
The most important dynamic in modern private markets is the convergence of private credit and private equity on the same deal. In 2024 and 2025, private credit funds financed roughly 60 percent of US sponsored middle-market LBOs, up from less than 20 percent a decade earlier per LSTA Quarterly Loan Market Review and PitchBook US PE Lending League Tables. The unitranche structure, a single loan that blends senior and subordinated debt into one facility with one interest rate, has replaced the traditional first-lien/second-lien split for most deals under 1 billion USD.
How a typical 2026 LBO capital structure looks
Consider a hypothetical 500 million USD purchase of a middle-market software company at 12x EBITDA (approximately 42 million USD of EBITDA):
| Layer | Amount | Instrument | Provider |
|---|---|---|---|
| Revolver | 30 million USD | Senior secured RCF | Bank (JPM, BofA) |
| Unitranche term loan | 250 million USD | First-lien unitranche | Private credit (Ares, Blue Owl) |
| Preferred equity | 50 million USD | Structured preferred | Growth equity fund or private credit second-lien sleeve |
| Common equity | 170 million USD | Common stock | Private equity sponsor + management rollover |
| Total | 500 million USD |
The PE sponsor writes a 170 million USD equity check for a 500 million USD asset. Private credit provides 250 million USD of the debt (50 percent of enterprise value). Interest on the unitranche at SOFR plus 550 bps runs approximately 24 million USD per year on a 250 million USD principal at 9.5 percent all-in. This exact structure is why Apollo, Blackstone, and KKR run parallel businesses in both PC and PE: one arm competes to buy the company, the other arm competes to finance the LBO.
The Chinese wall question
When Apollo’s PE arm buys a company, is Apollo’s credit arm allowed to lend to it? US and European regulators require information barriers between the two per the SEC’s Investment Advisers Act rules on conflicts of interest, and most large managers use third-party credit for their own LBOs to avoid conflicts. This is why deal syndicates often include Ares and Blue Owl financing a Blackstone-sponsored LBO, and vice versa.
Which is better for a lower-middle-market business owner?
If you own a business generating 1 million to 15 million USD of EBITDA and you are weighing a sale, private equity and private credit are not competing choices for your buyer, they are different roles in the same transaction. Understanding which one you are dealing with (and when) affects negotiation, structure, and after-tax proceeds.
Private equity as the buyer
PE firms buying a lower-middle-market business will usually purchase 60 to 100 percent of the equity, finance 40 to 60 percent of the purchase price with debt (increasingly from private credit funds, not banks), and target a 4 to 6 year hold. The seller can roll over 10 to 30 percent of equity into the new capital structure to align with the sponsor’s hold and participate in the second bite. See our guide on sell-side advisory and maximizing exit value for how this works in practice.
Private credit as the financing source for your buyer
You will rarely deal with a private credit fund directly as the seller of a business. But the terms your buyer negotiates with a private credit lender directly affect what you can extract at close. Aggressive lender covenants mean less closing-day cash for you, tighter earnouts, and larger holdbacks. If your buyer’s financing falls apart between LOI and close, the deal breaks. Ask your M&A advisor to confirm the buyer’s debt commitment letter is real and from a named lender before you sign an exclusivity provision.
Private credit as an alternative to a sale: the minority recap
An underappreciated middle ground: a private credit fund extends a subordinated loan (mezzanine) to your company, using the proceeds to pay a dividend to you as owner. You keep 100 percent equity ownership and take 30 to 60 percent of your equity value off the table in cash. The company services the loan from cash flow. This is called a “dividend recap” or “sponsor-less recap” and can be a viable alternative to a full sale for owners who want liquidity but are not ready to give up control. Firms like Twin Brook Capital, Monroe Capital, and Antares Capital do these regularly for businesses with 5 million to 25 million USD of EBITDA. For valuation methodology inside this structure, see our how to value a business guide and our discounted cash flow model walkthrough.
Private equity minority recap as another middle ground
A growth-equity firm buys 20 to 40 percent of your company for cash, joins the board, and helps you scale. You keep majority control. Firms like BV Investment Partners, Riverside Company (their non-control funds), and family offices like Kelso structure these. Returns to the equity investor come from selling the minority stake at a higher valuation in 5 to 7 years, ideally alongside your eventual full exit.
Comparing the four exit paths
| Path | What you sell | Cash at close | Ongoing role | Best for |
|---|---|---|---|---|
| Full PE sale (control buyout) | 60 to 100 percent | 60 to 100 percent of EV | 1 to 3 years (optional rollover) | Owners ready to exit fully |
| PE minority recap (growth) | 20 to 40 percent | 20 to 40 percent of EV | Continue running the business | Owners scaling with a partner |
| Private credit dividend recap | Zero | 30 to 60 percent of enterprise value | Continue running the business | Owners wanting liquidity without control loss |
| Strategic sale | 100 percent | 100 percent of EV | Transition role, 6 to 24 months | Owners with a clear industry buyer |
Private credit vs private equity vs private debt: terminology cleanup
The terms “private credit” and “private debt” are used interchangeably in most contexts. Preqin and PitchBook use “private debt” as the umbrella term; Bloomberg and Financial Times more often say “private credit.” Both refer to the same underlying activity: non-bank lending to private companies, held by a fund rather than syndicated to public markets. Where the terms diverge:
- Private credit: Preferred term in North America. Encompasses all direct lending, mezzanine, and specialty finance strategies.
- Private debt: Preferred term in Europe and by data providers. Same meaning.
- Direct lending: A subset of private credit, specifically the origination of senior secured or unitranche loans to sponsor-backed middle-market companies. Approximately 65 percent of the private credit market.
- Broadly syndicated loans (BSLs): NOT private credit. These are large corporate loans syndicated to CLOs and mutual funds. Public-market cousin.
- High-yield bonds: NOT private credit. Publicly issued corporate bonds. Rated by S&P/Moody’s, traded on desk.
Private equity, by contrast, has clearer terminology: LBO (leveraged buyout), growth equity, and VC (venture capital) are distinct strategies. Everyone in the industry agrees on the definitions. The confusion in private credit reflects how fast the asset class has grown out of what used to be a niche mezz-and-distressed backwater.
How CT Acquisitions positions lower-middle-market sellers between PC and PE buyers
Most bulge-bracket M&A firms will not represent a business selling for under 50 million USD, and most business brokers cannot competently negotiate a deal with a sophisticated PE buyer using unitranche financing. The lower-middle-market ($5 million to $50 million enterprise value) sits in the middle, where the buyer sophistication has caught up with upper middle-market practice but the seller often has never sold a business before.
CT Acquisitions focuses exclusively on this segment. We work only with owners of businesses generating $500K to $10M+ of EBITDA. Our fee structure aligns entirely with closing (retainer plus success fee, no percentage of enterprise value at LOI stage). We maintain direct relationships with roughly 900+ private equity buyers and 200+ family offices actively looking for lower-middle-market platforms and add-ons across HVAC, plumbing, MSP/IT, veterinary, professional services, industrial services, and specialty manufacturing verticals. When a private credit lender enters your buyer’s financing stack, we know which lenders honor debt commitment letters and which pull back on quality-of-earnings surprises. And we deliver every deal with senior advisors, not junior associates handed the file after LOI.
If you are weighing an exit and want to understand whether a full PE sale, a minority recap, or a private credit dividend recap fits your situation, schedule a 30-minute exit-readiness call at ctacquisitions.com/contact-us/. We will walk through your EBITDA, growth trajectory, ownership structure, and personal liquidity goals, and tell you honestly which path (or which combination) makes sense for what you have built.
Frequently Asked Questions
What is the difference between private credit and private equity?
Private credit is non-bank lending to private companies; the lender collects interest and gets repaid at maturity. Private equity is the purchase of ownership stakes in private companies; the equity holder earns returns from operational improvement and eventual sale. Private credit sits senior in the capital stack with contractual downside protection but capped upside. Private equity sits at the bottom of the stack with no upside cap but first-loss risk.
Is private credit riskier than private equity?
Private credit is generally lower-risk than private equity because credit sits senior in the capital stack, has collateral and covenants, and pays contractual interest before equity holders receive anything. Realized loss rates on senior secured private credit run 0.6 to 1.2 percent per year on average. Private equity is riskier because equity holders bear first-loss risk and depend on multiple expansion and operational improvement to generate returns. Bottom-quartile PE funds return less than 6 percent net IRR.
Do private credit funds outperform private equity?
On average, private equity outperforms private credit over full cycles: median PE net IRR runs 15 to 16 percent versus 9 to 12 percent for private credit. But 2020 to 2022 vintage private credit funds may outperform 2020 to 2022 vintage PE funds because of high floating-rate coupons and slower PE distributions. Top-quartile PE still outperforms top-quartile PC by a wide margin (22 percent vs 13 percent net IRR).
Can you have both private credit and private equity in the same deal?
Yes, and it is now the norm for middle-market and upper middle-market LBOs. A private equity sponsor buys the equity, and a private credit fund provides the senior debt (typically unitranche). In 2024 to 2025, private credit financed roughly 60 percent of US sponsored middle-market LBOs. Firms like Apollo, Blackstone, and KKR run parallel PC and PE businesses to participate on both sides.
What are the returns on private credit vs private equity in 2026?
Private credit is targeting 9 to 13 percent net returns in 2026, with floating-rate coupons of SOFR plus 500 to 650 basis points (currently roughly 10 to 11 percent all-in yield). Private equity targets 15 to 22 percent gross IRR, with median net IRR of approximately 15.4 percent for recent vintages. PE returns are back-loaded and depend on exit; PC returns are paid quarterly as cash yield.
Why is private credit growing so fast?
Four reasons: banks have retreated from middle-market corporate lending because of Basel III capital requirements and the 2023 regional banking stress; floating-rate coupons became attractive in a higher-for-longer rate environment; life insurers (Athene, Global Atlantic, Corebridge) demand long-duration yield to match liabilities; and non-traded BDCs opened retail wealth-channel distribution. Preqin projects private credit AUM will double from 1.7 trillion USD in 2025 to 3.5 trillion USD by 2029.
Is private credit the same as private debt?
Yes, for practical purposes. Preqin and PitchBook use “private debt” as the umbrella term; Bloomberg and industry practitioners more often say “private credit.” Both refer to non-bank lending to private companies, held by a fund rather than syndicated to public markets. “Direct lending” is the largest sub-category (approximately 65 percent of the market), covering senior secured loans and unitranche facilities to sponsor-backed borrowers.
Which is better for a lower-middle-market business owner selling their company?
Private equity is your likely buyer if you are selling a lower-middle-market business (roughly $5M to $50M enterprise value). Private credit is not a buyer at this level, but it is often the financing source your PE buyer uses to fund the acquisition. As an alternative to a full sale, a private credit dividend recap or a PE minority recap can give you 30 to 60 percent liquidity while retaining control. The right path depends on your growth trajectory, personal liquidity goals, and whether you want to keep operating the business.