US banks are raising borrowing costs for some loans to private credit funds amid growing concerns over valuations, a shift that could pressure returns and curb new lending, according to a Reuters report.
The higher pricing is showing up in back leverage facilities tied to business development companies, or BDCs, reversing a period of compressing rates before November last year.
Lending costs rise on back leverage facilities
Spreads on some credit lines to special-purpose vehicles set up by BDCs have climbed to as much as 2 percentage points over the Secured Overnight Financing Rate benchmark, up from around 1.8 percentage points since November last year, one source told Reuters.
Another source said comparable facilities moved from about 1.75 percentage points to 1.85–1.90 percentage points over the same period. Terms vary by manager, and final rates are typically disclosed later in regulatory filings.
Why valuations are under pressure
Private credit’s exposure to software borrowers is drawing scrutiny as investors assess the potential for artificial intelligence to disrupt business models and earnings.
Broader credit worries intensified after the bankruptcies of a subprime lender and an auto parts firm, and after a Blue Owl proposal to merge two funds in a way that could have imposed losses on shareholders.
“Any interest cost directly affects a private credit fund’s net interest income and IRR,” said Sean Dunlop, a banking analyst at Morningstar in the Reuters report.
He added it is “a rough spell for private credit,” citing elevated redemption requests for semi-liquid funds like BDCs and questions about the creditworthiness of underlying portfolios.
What this means for funds and banks
A tightening in lending conditions can limit funds’ ability to invest and finance operations.
Because managers use leverage to amplify purchasing power, more expensive back leverage narrows the room for profit unless assets reprice accordingly.
Private credit as an asset class totals roughly $2 trillion.
BDCs, which raise equity and pair it with leverage to lend to mid-sized companies, held around $513 billion in assets as of late 2025, according to Houlihan Lokey.
A recent Moody’s report showed US banks had lent nearly $300 billion to private credit providers as of June 2025.
Banks also loaned a further $285 billion to private equity funds and had $340 billion in unutilized lending commitments, based on Federal Reserve data and Moody’s analysis.
In early March, JPMorgan Chase marked down collateral values securing some loans to private credit players, a person familiar with the matter told Reuters.
“People have questions about valuations now that they didn’t necessarily have six months ago,” said Seth Kleinman, chair of the special situations practice at Benesch in the report. He added, “The era of low rates for a sustained period of time seems like it is over.”
Market backdrop and outlook
Before November last year, borrowing costs on these facilities had been getting cheaper for about eighteen months, sources said. With spreads now firmer across the market, some private credit firms are reportedly increasing the rates they charge to absorb higher funding costs.
The shift underscores how valuation uncertainty and macro risks are filtering into financing terms.
For now, banks are proceeding more cautiously, and funds face a tougher environment for sustaining net interest income and internal rates of return.
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