From 2024 to 2025: Major Shifts Transforming Lending

The private lending landscape is rapidly evolving as it adapts to shifting economic conditions. In 2024, the economic environment has been suffering from a hangover of high inflation, higher interest rates, persistent supply chain disruptions, and a global economic slowdown. These are all manifestations of deeper underlying issues, including ongoing geopolitical tensions, trade conflicts, and political instability in key regions that have either emerged or continued to evolve this year.?

As traditional banks become more cautious, private lenders are stepping in with flexible, tailored solutions. However, this shift exposures risks, particularly defaults and market volatility. AI-driven risk assessment platforms are becoming essential tools, helping lenders make informed decisions and mitigate risks.?

This article explores the main 2024 shifts in private credit and how AI can optimise investment strategies while minimising risks.?

How 2024's Shifts Shape 2025 Private Credit?

High Inflation and Interest Rates?

2024 has been defined by central banks getting inflation under control by maintaining relatively high interest rates, especially in the U.S., and has made traditional bank lending more expensive and harder to come by due to regulations, leading many borrowers to seek alternative financing. Private credit markets filled this gap, offering flexible terms for sectors like real estate, technology, and distressed assets. However, the consequences of high interest rates has led to increased financial distress, particularly for highly leveraged borrowers, heightening lending risks.?

Europe has had the same challenge of getting inflation under control through maintaining high interest rates, but with a fragmented private credit market. Increased demand for non-bank financing drove growth, but regulatory hurdles, particularly regarding transparency and risk management, will shape strategies in 2025.?

World Economic Forum. US Fed cut rates, 2024?

World Economic Forum. European Central Bank interest rates, 2024?

Default Risks and Corporate Distress?

As borrowing costs rise, so does the risk of defaults, especially among highly leveraged or low-creditworthy companies. In 2024, the narrowing spread between junk bonds and Treasuries raised concerns about the mispricing of risk. As defaults increase, private lenders must be cautious of hidden risks in their portfolios. Lenders specialising in distressed debt have opportunities in this environment, but these come with high-risk, high-reward dynamics. Strong due diligence and risk management will be vital in 2025 as sectors like real estate and technology face instability due to over-leveraging and market pressures.?

S&P Global Ratings Credit Research & Insights expects the U.S. trailing-12-month speculative-grade corporate default rate to fall slightly, to 3.75% by June 2025 from 4.8% in June 2024.?

The Rise of Distressed Debt Opportunities?

The economic slowdown in 2024 led to growing financial distress, particularly in sectors like technology, oil &gas and real estate. Distressed debt became a significant opportunity for private lenders, though it requires accurate risk assessment and valuation. Lenders who specialise in these areas must leverage advanced tools to manage the complexities and risks of distressed assets. With the increasing number of bankruptcies and restructurings, distressed debt remains a critical area for private lenders in 2025. Technology-driven solutions will be key to mitigating risks in this volatile market.?

Credit Benchmark’s projected default rate for 2024/25 — US Default Risk Landscape

Credit Benchmark’s projected default rate for 2024/25 — EU Default Risk Landscape

Capturing the AI opportunity?

In 2024, technology continues its rapid growth despite the global turbulence. According to KPMG, 75% of CEOs in asset management consider generative AI a top business priority. AI platforms are becoming essential for private lenders, helping them manage risks effectively, optimize portfolios, and respond swiftly to market changes. Key ways AI supports lenders include:?

?? Early Risk Identification: Detects potential risks ahead of traditional methods.?

?? Portfolio Diversification & Stress Testing: Analyses sector risks and simulates economic scenarios for better portfolio management.?

?? Real-Time Monitoring & Alerts: Tracks borrower performance and provides instant alerts on financial shifts.?

?? Improved Credit Scoring: Uses a broader set of data, including non-financial indicators, to enhance credit evaluations.?

AI platforms provide private lenders with the tools to navigate risk and market volatility more efficiently, ensuring better decision-making and performance optimisation. By embracing AI, lenders can enhance their competitiveness in the rapidly evolving financial landscape.?

Get Ready to Turn Risks into Opportunities?

The economic shifts of 2024 have reshaped private lending, presenting new risks and opportunities. As banks scale back lending and regulations increase, private lenders can expand by offering flexible solutions. However, these opportunities come with increased risks of borrower defaults and volatility. To manage these challenges, AI-driven platforms, such as Wiserfunding offer better credit assessments, real-time monitoring, and portfolio optimisation.??

Our AI-driven tool stands out by providing detailed reports with insights from both financial and non-financial data, offering a comprehensive view of borrower health. Combining real-time insights with expert advice, you can create risk-adjusted investment strategies that adapt to the evolving financial landscape.?

Don’t wait for uncertainty to become a threat—act now to safeguard your assets and ensure long-term stability with Wiserfunding’s expert tools and insights.

??Contact our experts: https://wiserfunding.com/contact-us/??

References:?

Bloomberg: Ed Altman Says Private Credit Has Broken a Junk Bond Barometer.?

Oaktree: Performing Credit Quarterly 3Q2024: Who Are the Lenders Now??

S&P Global Ratings. Global Credit Outlook 2025.?