With the announcement by the Bureau of Economic Analysis today that GDP is estimated to have dropped for a second consecutive quarter, this likely means M&A will slowdown even more. Market volatility has already seen some large deals fall apart because it is hard to get loans for them. So what are mid-market dealmakers going to do during this difficult climate? Turn to direct lenders.

One PE-backed CEO recently told me for lower mid-market and add-on deals, it might be easier to get financing. Lenders insist that direct lending remains one viable option.

“Direct lending is a vital financing strategy for middle-market businesses and their backing sponsors,” says Chris Flynn, president of First Eagle Alternative Credit, following the alternative credit manager’s fifth direct lending fundraise. The firm lends up to $250 million to PE-backed companies across the business and financial services, healthcare, information services and technology and consumer services sectors.

First Eagle is not the only firm seeing a rise in private credit opportunities in this market. Earlier this year, Stellus Capital Management, a provider of direct lending services, raised $225 million for Stellus Credit Fund III.

There are a number of benefits of using direct lenders including the speed, flexibility and certainty they offer in closing deals, and a lot of cases they are cheaper too. And mid-market lenders predict that private lending will remain robust.

“We are cautious when putting money to work now and are looking for recession proof businesses,” Flynn tells Mergers & Acquisitions. “We expect pricing in direct lending will continue to widen.”

-Demitri Diakantonis