By Jamal Hagler

Small businesses and manufacturers are the twin engines of the U.S. economy — powering local communities, creating jobs, and onshoring critical industries and supply chains. However, both face a common challenge: a capital crunch.

As traditional banks retreat from lending, too many companies are struggling to secure the financing they need to grow, innovate or stay afloat. That’s where private credit is stepping up, filling the gap, and fueling economic growth where it’s needed.

Private credit provides fast, tailored financing to companies that are too small, too new, or too unconventional for banks. According to a study commissioned by the American Investment Council and conducted by EY (previously known as Ernst & Young), 70% of borrowers used private credit because they were “too small for bank syndication.” Others cited faster execution (91%), larger loan sizes (82%), and more flexible terms (77%) as top reasons.

In 2024, private credit-backed companies employed 811,000 people, paid $87 billion in wages and benefits and contributed $145 billion to the gross domestic product. The median company supported by private credit employs 182 people. When you include suppliers and local spending, that economic activity supports 2.5 million jobs and $370 billion in economic output.

Unlike traditional lenders, who often operate with rigid requirements, private credit investors develop close, long-term relationships with borrowers. These partnerships can encompass operational support and strategic guidance.

Take Otter Learning, an early childhood education company. When traditional financing fell short, it turned to private credit from The Riverside Co. That investment helped them offer better health and retirement benefits to staff, hire new employees, and expand access to high-quality education.

Private credit doesn’t just help small businesses stay afloat; it also funds innovation, expansion and job creation. Private credit supports more than 201,000 manufacturing jobs by financing equipment upgrades, expanding production capacity, supporting acquisitions or market growth, and enabling succession plans for family-owned manufacturers.

This is crucial for capital-intensive manufacturing businesses that are critical to U.S. economic competitiveness, including aerospace, automotive, electronics and military manufacturing.

Private credit has emerged as a critical source of financing for businesses in traditional manufacturing regions of the country, supporting 62,000 jobs in Michigan, 84,000 jobs in Ohio, and 91,000 jobs in Pennsylvania through direct investments and secondary consumer and supplier spending.

Despite these benefits, some critics want to regulate private lenders like banks. However, a recent Federal Reserve report found that private credit poses limited systemic risk. Burdening the industry with unnecessary regulation or taxes could shut off capital to a critical segment of our economy just when those businesses need it most.

Jamal Hagler is the senior vice president of research at the American Investment Council/InsideSources