Private Credit Lending to SaaS Companies Becomes Largest Industry Exposure
Private credit funds have significantly increased lending to SaaS companies, rising from approximately $8 billion in 2015 to over $500 billion by the end of 2025, accounting for about 19% of total direct loans.
Data from several BDCs shows that software loans make up over 15% of their portfolios, with leading institutions like Ares Capital having software exposures exceeding several billion dollars. Borrowers are mainly mid-sized SaaS companies, using the funds to support growth, acquisitions, and working capital.
This trend is driving capital from traditional banks to private credit, with event-driven SaaS companies benefiting from flexible financing and high leverage support. Private credit fund managers profit from interest rate spreads, but software valuation re-evaluations due to AI disruption are putting pressure on some loans, exposing investors to liquidity and impairment risks.
Source: Public Information
ABAB AI Insight
Blackstone, Ares, and other private credit giants have previously bet heavily on the stability of SaaS recurring revenue, similar to the loans issued based on ARR between 2015-2025 that fueled PE leveraged buyouts. Software was previously viewed as a defensive borrower, but under the impact of AI tools in 2026, several loans are facing re-evaluation pressure.
In terms of capital flow, private credit funds continue to invest LP funds and leverage into SaaS loans through senior secured structures and PIK terms to mobilize borrower cash flow. The strategic motive is to capture long-term cash flows from software subscription models, but currently, they are responding to AI-induced growth slowdowns and valuation declines with stricter covenants and selective lending.
This reflects the cyclical risk exposure seen in historical bank lending to technology, and the current transition of private credit from expansion to risk re-evaluation aligns with SaaS moving from high growth to an AI adaptation phase.
Essentially, this is about capital concentration and technological substitution: AI accelerates the replacement of traditional SaaS models, mechanism-wise shifting private credit capital from generalized software exposure to a few borrowers with strong moats or AI-native adaptability, while also pushing the industry from high-leverage ARR loans towards more conservative cash flow-oriented structures to avoid systemic impairment spread.
ABAB News · Cognitive Law
Recurring revenue is easy to lend against, but AI substitution is hard to defend. Top capital re-evaluates collateral rather than historical assumptions. Most pursue stable cash flows from software, while a few lock in execution moats; leverage stems from adaptability rather than subscription itself. Selling high-leverage financing achieves scale temporarily, but maintaining risk structures ensures survival through cycles. Winners always turn technological disruption into reallocation opportunities.