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🔍 Why private credit is under the microscope

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Idin Sabahipour & Laura White
January 14, 2026

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Private credit has grown so big that the Bank of England is looking to treat it like the banking industry. The BoE wants better data from private credit funds so it can see where the risks really sit and stop any issues spreading through the whole financial system.

EDITOR’S RAMBLE 🗣

You check your inbox. Nothing.

That's how it feels waiting to hear back from law firms.

At this stage, the silence in your inbox doesn’t mean anything. It’s not good news, it’s not bad news. It just means there’s not been a decision made yet.

So, checking your inbox again and again won’t help you (and it definitely won’t affect the outcome). It just wastes attention you could be applying somewhere else.

But here’s what you can do to claim that attention back, and put it to good use.

Firstly, take back control. Treat email as something you check deliberately, not something you monitor.

Decide on two fixed 15-minute time slots:

  1. One in the morning (at least 1 hour after you wake up).

  2. One in the afternoon.

Put those slots in your calendar if you need to.

Outside those windows, assume nothing has changed — because most of the time, it hasn’t. And if it has, finding out 1 hour earlier won’t change anything.

Now, that frees up more of your attention for things that actually help you.

And here’s what to do with it.

First, if you haven’t got one, create a simple tracker of your applications and what stage you’re at with each. That’ll give you clarity on what you’re even waiting for.

Then, if you can, submit just one more application to a firm with a later deadline (I just checked — there are still some that are open).

Doing any of this won’t change your chances of getting an offer. But that’s not the point. The point is to stay focused on what you can control while the process runs in the background.

The law firm’s response is going to take as long as it takes. So, take advantage of this time to help yourself.

– Idin

🔍 Why private credit is under the microscope

What’s going on here?

British lawmakers want to give the Bank of England (the UK’s central bank) new powers to collect data on the private credit market.

The Bank of England is conducting a stress test of the private credit market to check how risky it is if something goes wrong.

🤔 What is a stress test?

A stress test checks what would happen if things go badly in a system.

In this case, the Bank of England will look at worst-case events, like a recession, or high interest rates. Then it will test whether companies can still pay their debts and whether lenders can take those losses.

But the BoE doesn’t have the data it needs to run this test effectively. Without the right information, it can’t see how much danger private credit and private equity might pose to the UK financial system.

What is private credit?

Private credit is money lent by firms that aren’t banks.

The firms raise money from big investors like pension funds, insurers, and state funds, and use it to give large, long-term loans to companies (often $10 million to $250 million over three to seven years).

The private credit market grew after banks became more heavily regulated following the 2008 financial crisis.

In the UK, about 2,000 companies now use private credit. It totals around ÂŁ100 billion and accounts for almost all growth in business lending since 2008.

How is private credit different from a standard bank loan?

This table shows how a normal bank loan compares to private credit.

Normal bank loan

Private credit

Who lends the money?

Banks

Investment funds (like Blackstone, Apollo, and KKR)

How is a loan funded?

Several banks usually share one big loan

One fund usually provides the whole loan

How the deal is set up?

One bank arranges the deal and finds other banks to join

One fund typically lends straight to the company

What happens to the loan?

Banks often sell their share of a loan to others

The fund keeps the loan until it is repaid

Who’s the typical borrower?

Big, well-known firms with strong credit

Started with smaller, riskier firms, but now includes bigger companies

What’s the benefit of private credit?

Here are some of the key benefits of private credit over traditional bank lending.

🚀 Faster access to money: Private credit funds face far fewer rules than banks. Since they don’t use customer deposits, they can approve loans faster. That matters when a company needs cash quickly or is rushing to close a deal.

💸 More flexible repayment terms: Private credit loans are designed to fit the company. The borrower usually pays less at the start and more later on. This means it can keep more cash early, when it needs it most, to grow its own business. Banks, on the other hand, expect fixed monthly payments from day one, even if the business is just getting started.

🔒 More certainty that the deal will happen: One private credit fund typically provides the entire loan. With banks, deals are often split across many lenders and can fall apart if one pulls out. When a private credit fund says yes, the money is usually guaranteed.

What is the Bank of England worried about?

The Bank of England is not saying private credit is bad. But the industry is fast-growing, loosely regulated and not transparent — which makes it risky if something goes wrong.

See, private credit funds lend money for years. But investors in these funds can ask for their share back at any time. The problem is that the fund can’t sell its loans quickly to get that cash. So if a lot of investors want their money at once, the fund can run into trouble.

And those issues wouldn’t just stay in the private credit market. For example, some banks lend to these funds.

If a private credit fund starts losing money, people may sell other financial assets they own (like shares and bonds) to raise cash. If a lot of people do this at once, prices fall and the stress then spreads to the rest of the market.

If interest rates go up, that can also put pressure on the market. When rates go up, borrowers have to pay more on their loans. If they can’t afford those higher payments, they may miss payments or default, which causes losses for the lenders. This could, again, cause investors to panic and result in falling prices of financial assets.

The Bank of England wants more data to see what’s clearly going on — and to make sure that if something goes wrong, it doesn’t impact the whole financial system.

Why should law firms care?

Private credit is present in a huge amount of work that large commercial law firms do. It funds buyouts, refinancings, and a lot of private equity deals. So when private credit is strong, transactional lawyers are busy.

The rise in private credit is one reason so many UK firms are merging with US firms. The most profitable legal work today comes from deals that have a link to US-based private credit and private equity firms — they run a lot of deals and pay really high fees.

If private credit slows, those deals slow too. Private equity deals will struggle to get funded, refinancings could dry up, and M&A transactions would fall. All of those heavily hit corporate and finance teams at law firms.

So that’s why the Bank of England’s stress test matters to law firms. Depending on the outcome, it could impact how much deal work there is in the future.

How can you use this in your applications?

Insight

How to use it in your applications

Private credit now matters to the whole economy. It’s grown so large that the Bank of England now treats it like banks and public markets (not a niche product).

In your application, you could discuss how you’re interested in a firm’s banking, funds or financial regulation teams because they sit where law meets the economy.

For example, you could say “Private credit is being treated by the Bank of England like banks, which shows how important it has become. That’s why I want to work in teams that advise lenders, funds and regulators.”

Strong rules depend on good data. Regulators can’t manage risk if they don’t know who holds it or how money moves through the system.

In a case study, you could explain how lawyers help make markets safer by making sure their clients follow reporting rules.

By helping funds and lenders share information with regulators, systemic risks can be spotted early.

Growth always comes with risk. Private credit expanded because banks pulled back after the financial crisis, pushing lending into less visible parts of the market.

You could raise this point in an assessment centre to show balanced thinking.
While it is riskier, private credit is really important. It helps keep deals and businesses funded.

Any new rules need to protect the system without lending that’s useful to the whole economy (and the fees brought in by commercial law firms!)

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IN OTHER NEWS 🗞

  • ⚖️ The government plans to take a big cut of law firms’ client account interest. Under the proposal, up to 75% of that interest would go to the Ministry of Justice. But for some law firms, client account interest makes up most of their profit. The Law Society says this would hit high street and conveyancing firms hardest and force fees up.

  • 🤖 Ropes & Gray is letting junior lawyers spend 20% of their billable time using and testing AI. Trainees and newly qualified lawyers will use tools like Harvey and Hebbia on real client work, try new ways of working, and share what they learn across the firm. They still get paid as normal as big law firms push harder to build AI into everyday legal jobs.

  • 💰 Rio Tinto and Glencore are in early talks about a possible $260 billion merger that would create the world’s biggest mining company. The two mining companies say nothing is agreed yet, but the move fits a wider push to cover more metals like copper, which are in high demand for clean energy and data centres. A&O Shearman is advising Rio and Weil is acting for Glencore.

AROUND THE WEB 🌐

STUFF THAT MIGHT HELP YOU 👌

  • 💻️ Free application advice: Check out my YouTube channel for actionable tips and an insight into the lifestyle of a commercial lawyer in London.

  • 📁 Law firm application bank: A growing library of real, verified successful applications for training contracts and vacation schemes. Helpful if you want to learn from others who answered the same questions you’re stuck on.

  • 📝 Write winning law firm applications: A practical course to help you write clearer applications, faster. Avoid common mistakes, learn how to structure answers properly, and get lifetime access to future updates. Try it for 14 days, risk free.

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