Direct lending in Spain may be less established relative to private credit ecosystems in other European jurisdictions, but attractive growth projections and sound credit fundamentals make this market one to watch.

Private credit deal volumes in Spain are still approximately a fifth the size of larger, sophisticated European private credit markets such as the UK and France. But the Spanish market is expanding quickly, with deal volumes for the 12 months ending June 2025 up by almost 50% from the same period ending June 2024, according to Deloitte.

Several international private credit franchises, including Pemberton, Ares and Tikehau Capital, have opened offices in Spain. The investment by these players in their Spanish teams has complemented the presence of other pan-European players in the market, including Kartesia and Capza, and home-grown private credit franchises such as Madrid-headquartered Oquendo Capital.

Firm foundations

Rising deal volumes and Spanish office openings reflect the attractive opportunities available to direct lenders and their investors.

The past 12 to 24 months have been a time of transformation for private credit provision in Spain. Direct lenders are no longer simply following pan-European sponsors into the market opportunistically; they are now investing in domestic origination capacity and working more closely with local private equity firms, as well as occasionally entering into unsponsored deals.

A combination of factors has drawn global private credit players to the Spanish market. Besides robust credit fundamentals, Spain also features supportive regulation and a long growth runway, as the banks that once dominated the market reappraise their strategies and risk appetite.

Private credit lenders have been direct beneficiaries of the stability of the wider Spanish financing and banking system. Ratings agency Scope notes that the 10-year risk premium on Spanish government bonds is running at just 60 basis points, the lowest level in a decade and lower than the risk premia in France, Italy, and the UK.

Stability in sovereign debt markets is rippling out into the corporate lending market. Scope notes that the debt-to-net asset ratios on Spanish corporate balance sheets have improved during the past decade. This deleveraging has provided businesses the headroom to take on additional financing if required.

Regulatory appeal

The Spanish market offers an attractive regulatory framework. Non-bank lending is not directly regulated, enabling new entrants to commence operations without having to obtain registration or authorization in Spain. Private credit lenders are not overseen directly by the Bank of Spain or European Central Bank. This makes it relatively straightforward for pan-European players to participate in Spanish deals without the complex structuring demanded in other markets.

The industry also enjoys support from the Spanish government, which sees private credit as a valuable source of financing for the country’s small and medium-sized enterprises (SMEs).

In October 2025, Spain’s Ministry of Economy, Trade & Enterprise and the European Investment Fund announced an additional €200 million allocation to the Regional Resilience Fund’s Alternative Lending for Sustainable Development instrument, doubling the initial allocation.

The instrument supports non-bank providers who finance SMEs that invest in energy efficiency, renewable energy and social impact projects. Capital has already been channeled into seven active private credit funds in Spain.

Financing Spain’s SME market has been a real spur for private credit growth. Historically, Spanish SMEs relied on relationships with local, regional banks to cover their financing requirements until the 2008 financial crisis and related real estate liquidity freeze reshaped these dynamics. The regional bank market then consolidated and lenders adopted a more cautious approach to managing risk, loan book size and exposure.

ION Analytics reports that between 2005 and 2025 the number of deposit-taking institutions in Spain has contracted from 204 to 126, 80 of which are overseas banks. The SME space remains a bank-led market, but opportunities have opened for private credit players to fill gaps that have emerged as the regional banking industry has consolidated.

Borrowers have also grown increasingly familiar with direct lending as private credit track records have evolved. Today, there is more awareness of the flexibility and bespoke capital structures that private credit firms can offer SMEs.

Private credit capital will be costlier than bank debt, but can be structured with much more flexibility. Direct lenders have proven their ability to curate bespoke structures tailored to the specific needs of SMEs, taking positions up and down the capital structure, from revolving credit facilities to junior and mezzanine options, as borrowers require.

Private credit players have also shown that they are comfortable taking on more risk. They can often provide more leverage than banks, or step into stressed situations in which banks are less likely to participate.

However, direct lenders are not deliberately competing head-to-head with banks. In fact, many are partnering with banks on deals. Traditional lenders have been content to arrange deals, collect the associated fees and hold less risky revolving credit facilities and Term Loan A debt, while sharing the remainder of the transaction with private credit funds, which hold the higher priced Term Loan B and junior capital debt tranches.

These arrangements have proven mutually beneficial for banks and private credit funds. There are also examples of the two lender groups cooperating on a more formal basis, as observed in the formation of Invensa, a strategic partnership between Santander and Pemberton, which will offer large and mid-sized businesses with supply-chain inventory financing.

A bright outlook

Direct lending in Spain still has a long way to go before it catches up with the bigger European markets, as large underwrites are rare and there is still work to do to educate borrowers who have always worked with traditional, tried-and-trusted banks.

Despite these growing pains, private credit in Spain is a rapidly developing market supported by solid credit fundamentals and a long runway of future deal opportunities.

Global players are beginning to seize these growth opportunities and are investing in their Spanish operations. Those who have yet to explore the market would be well advised to examine it closely in the months and years ahead.