Collateralized lending in private credit

Private credit, often associated with unsecured lending, has experienced remarkable growth in recent years. We use U.S. loan-level data to show that total outstanding amounts of secured direct loans now surpass unsecured direct loans. Loans are more likely to be secured when informational frictions between lenders and borrowers are more severe. Comparing loans to firms within the same metropolitan statistical area (MSA) and industry, we observe that secured loans have lower amounts, higher spreads, and longer maturity than unsecured loans. Club deals and revolvers are increasingly common in both market segments, likely driven by rising bank participation. Finally, employing an instrumental variable strategy and cross-sectional variation in house prices across MSAs, we provide suggestive evidence of a 'real estate collateral channel' in private credit. When house prices rise, secured direct lending increases by substantially more than its unsecured counterpart, especially in collateral-dependent industries. We conclude by discussing the implications for monetary policy transmission and the evolving bank-private credit nexus.