Private credit has become a mainstream asset class, with major influence on how businesses, particularly in the middle market, secure funding. With higher interest rates, tighter banking regulations, and ongoing economic uncertainty, many mid-sized companies are finding that traditional credit channels no longer meet their needs. In Canada, the challenge is especially acute given the dominance of a handful of large banks and strict regulatory capital requirements.
A recent feature in The Secured Lender Magazine (p. 50) highlights how private credit providers are stepping into this gap. Industry leaders argue that asset-based lending (ABL) and private credit can work together to keep viable companies moving forward, even as balance sheets strain under higher-for-longer interest rates.
Why Private Credit Is Gaining Ground
At its core, private credit thrives where banks hesitate. Traditional lenders prefer predictable collateral and standardized underwriting, but many mid-market companies rely on assets—ranging from industrial equipment to intellectual property—that don’t fit neatly into those models. Private credit firms, by contrast, are structured to assess these situations and provide bespoke financing solutions.
According to market participants, today’s conditions represent one of the most attractive backdrops for private credit in two decades. Elevated borrowing costs have revealed structural fragilities in capital structures built during the cheap-debt era, particularly among companies acquired in leveraged buyouts. For private lenders, this creates opportunities to finance recapitalizations, operational turnarounds, or strategic ownership changes.
The Canadian Context
Canada presents a distinctive case. With a concentrated banking system and limited competition among traditional lenders, borrowers facing transition often find few options. This has amplified demand for alternative lenders willing to structure financing around non-traditional collateral.
One firm at the center of this trend is Toronto-based Third Eye Capital. Led by CEO Arif Bhalwani, the firm has deployed over $5 billion in asset-based and special situation financing since 2005. As Bhalwani explained in The Secured Lender, elevated rates have “exposed the structural fragility of balance sheets,” especially among companies caught between rising borrowing costs and slowing growth. In such cases, private credit serves as a stabilizer, offering capital where banks cannot.
Bhalwani’s approach reflects broader private credit dynamics: thinking like an owner, structuring around collateral durability, and embedding performance incentives into lending. These practices are increasingly essential as investors seek managers who can deliver stable returns without excessive risk-taking.
Complementary Roles: ABL and Private Credit
Private credit does not operate in isolation. In many cases, it works in tandem with ABL platforms to create blended solutions. ABL lenders typically provide liquidity secured by receivables or inventory—the “what is” on a balance sheet. Private credit can then extend beyond that baseline, financing transformations and future potential.
This complementary structure is particularly valuable in the middle market, where borrowers may need both working capital and funding for strategic initiatives. By combining the strengths of both models, companies gain the flexibility to navigate challenging cycles without overburdening traditional lenders.
For institutional investors, private credit offers both diversification and resilience. Pension funds, insurance companies, and family offices continue to increase allocations, attracted to stable cash flows and downside protection in the capital structure. While questions around transparency and liquidity remain, investor confidence in private credit strategies remains high, particularly in areas such as asset-based lending and real estate credit.
The expansion of private credit sub-strategies also offers new avenues for returns. As noted in the RankiaPro report on active management, opportunities increasingly lie in specialized areas such as litigation finance, infrastructure, or real estate-backed loans—strategies that require deep expertise and active oversight.
Looking Ahead
Private credit’s future in Canada and beyond is tied to its ability to adapt to complexity. As deleveraging continues and refinancing waves approach in 2026–2027, demand for flexible credit solutions will remain strong. For the middle market—which represents over 30 percent of private sector jobs—these financing options are critical not only for stability but for growth.
Executives like Arif Bhalwani argue that the path forward requires discipline. In The Secured Lender, he stressed the importance of “durability of the collateral base, real-time access to reporting, and strong intercreditor protections” as part of any deal structure. That disciplined framework, he believes, is what will separate sustainable private credit strategies from opportunistic ones.
As Canadian businesses continue to adjust to a new cost of capital, private credit will play an even greater role in financing transformation. For investors and borrowers alike, the sector’s adaptability, along with the expertise of experienced managers, will determine how effectively the middle market navigates the years ahead.
