Personal credit score in Europe’s decrease mid-market gives one thing more and more uncommon: structural inefficiency that favors buyers. Whereas the US dominates personal credit score by scale, Europe’s reliance on banks, smaller fund sizes, and regional fragmentation depart a persistent financing hole for corporations too small for world capital markets however too giant to rely solely on native banks. This creates a compelling, and certain sturdy alternative for personal credit score funds with native market experience.
Regardless of decrease base charges, debtors in Europe are paying greater spreads and charges because the all-in yields in Europe and the US are broadly related. Additional, financial institution retrenchment and concentrated fundraising among the many largest funds have left the fragmented decrease mid-market much less aggressive. For buyers, which means a lovely entry level right this moment. Structural inefficiencies proceed to protect pricing energy, making partnership with the precise managers vital.
Entry to debt financing is vital for the expansion of small- and medium-sized enterprises (SMEs), which type the spine of the European economic system. Based on the European Fee, SMEs symbolize greater than 99% of the European Union’s 32.3 million enterprises. The decrease mid-market — corporations with 250 to five,000 staff — comprise roughly 8% of EU companies, or about 2.6 million firms.
Traditionally, SMEs have relied closely on banks, significantly in continental Europe. Stricter capital necessities imposed on banks post-financial disaster have constrained financial institution lending, in flip hitting the decrease mid-market particularly exhausting, significantly outdoors main monetary hubs resembling London or Frankfurt[1].
Personal credit score has stepped in to partially fill this hole, however capital is more and more concentrated. In 2024, 94% of all personal credit score capital raised globally went to the biggest 50 funds, up from 81.5% a yr earlier[2]. In consequence, phrases and pricing within the higher mid-market (sometimes EBITDA > €25–30 million) have largely converged between the US and Europe, with debtors having fun with ample entry to credit score.
In distinction, the decrease mid-market stays fragmented and fewer intermediated, making a structural alternative for non-bank lenders and providing higher diploma of transaction management and pricing energy. Latest analysis by Aksia helps this conclusion[3].
Quantifying the Alternative
To check the European and US decrease mid-market landscapes, we gathered knowledge on direct lending funds in each areas from numerous knowledge sources[4]. In complete, we thought of roughly 20 senior secured mortgage funds in every area. Whereas not statistically exhaustive, the evaluation reveals a number of constant patterns.
All-in yields in Europe are barely greater than they’re in the US, regardless of decrease base charges. This has been the case since mid-2022, the beginning of the Federal Reserve and European Central Financial institution price hikes. As of September 1, 3-month SOFR stood at roughly 4.03% versus 3-month Euribor at roughly 2.07%. Whereas troublesome to measure empirically, this means that debtors in Europe face greater spreads, greater upfront charges, or each.
Extra importantly, we observe extra conservative deal structuring and danger profiles in Europe, significantly by way of leverage. In money flow-based loans, leverage (Debt/EBITDA) tends to be decrease in Europe: our pattern suggests a distinction of roughly 0.5x. From our personal market observations, debt-to-ARR multiples within the software program sector peaked at round 2x in Europe and have since fallen to under 1x, in comparison with present US ranges of 2x, and as excessive as 3x on the peak.
Why the Hole Persists
The enticing risk-reward profile in European decrease mid-market personal credit score displays a mixture of structural inefficiencies and cyclical dynamics. Whereas market situations could evolve, lots of the underlying drivers level to a long-lasting transatlantic hole.
Cyclical elements embody rate of interest and forex differentials, which have an effect on base charges and hedging prices. Europe’s weaker current macro backdrop together with slower development, geopolitical uncertainty, and power shocks, has tempered lending urge for food. In distinction, components of the US market have proven indicators of exuberance, with tighter spreads and looser buildings.
Structural variations like a shallower institutional capital pool, financial institution dominance, and borrower conservatives are extra enduring. The European personal credit score market stays much less developed than the US market. In 2024, North America–targeted personal credit score funds captured ~72% of world capital raised[5]. Since 2008, ~70% of personal credit score capital has been raised in North America and ~25% in Europe, in response to the RBA abstract of IMF/PitchBook work. Whereas capital flows may be shifting, the depth and dynamism of the US market means near-term convergence is unlikely.
As of December 2024, European direct lending dry powder stood at roughly $80 billion, down from almost $95 billion a yr earlier, whereas North America hit a file $167 billion in December 2024, up 17% year-on-year[6]. As well as, the extra superior personal credit score panorama in the US additionally provides North American managers the flexibility to make use of scale-enhancing instruments resembling fund-level leverage and co-investments extra readily. This disparity illustrates the depth and effectivity benefits within the US market.
On the smaller finish of the spectrum, the hole widens. Since 2023, 453 North America-focused direct lending funds under $2 billion have been raised, in comparison with simply 185 funds in Europe[7].
Investor preferences reinforce this divide. European LPs, sometimes extra risk-averse, have restricted urge for food for area of interest methods. As an alternative, they’ve favored giant, plain-vanilla direct lending funds supplied by the most important US managers.
On the demand facet, European debtors stay extra conservative, with smaller deal sizes, slower decision-making, and fewer familiarity with structured credit score. Such cultural and behavioral elements scale back transaction velocity but additionally restrict lender competitors and help extra conservative buildings with arguably superior danger dynamics.
Financial institution reliance, particularly in DACH (Germany, Austria, and Switzerland), and Southern Europe, additional entrenches the hole. Whereas non-bank lenders have grown market share in sponsor-led transactions — accounting for 56% in Germany in 2024 and 20–40% in Spain over the previous two years — most SMEs nonetheless lack entry to tailor-made credit score.
Mixed with Europe’s authorized, cultural, and regulatory fragmentation, and the necessity for native presence throughout a number of jurisdictions, these structural elements make near-term convergence unlikely, significantly within the decrease mid-market.
Implications for Buyers
Europe’s personal credit score market has progressed simply as investor sentiment in direction of the asset class has shifted. Debtors within the higher mid-market have little hassle accessing capital as Europe and the US now function in a largely built-in world market.
Alternatives abound within the European decrease mid-market, which stays one of many few locations the place buyers can nonetheless seize greater yields alongside stronger credit score protections. Success relies upon much less on scale than on selecting managers with deep native networks, multi-jurisdictional experience, and a monitor file of structuring and exiting transactions. Whereas some convergence with the US market is feasible, structural inefficiencies in Europe’s decrease mid-market are unlikely to vanish rapidly. For buyers ready to look past the biggest platforms, the area gives a sturdy and differentiated supply of alpha.
[1] Deutsch Bundesbank Dialogue Paper No. 37/2022, https://hdl.deal with.web/10419/265433
[2] Preqin 2025 International Report: Personal Debt.
[3] Aksia, “Does Personal Credit score have an excessive amount of cash?” August 2025.
[4] Together with Preqin, publicly accessible knowledge and knowledge supplied straight by the fund managers.
[5] Preqin 2025 International Report: Personal Debt.
[6] Preqin Direct, extracted August 2025
[7] Preqin Direct, extracted August 2025: Contains classic years 2023 onwards
