The market for private credit continues to grow, a report on Europe shows.

Privately-placed loans intermediated by banks have become the top format for alternative funding, highlighting the growth in private credit that has become a talking point among family offices and wealth managers, a survey said.

YouGov research, published by Allen & Overy, the law firm, shows that privately placed loans intermediated by banks have grown more common in use in the past year. This format is used by 54 per cent of corporates and 61 per cent of investors, up from 48 per cent and 58 per cent, respectively, in 2015.

Family offices, high net worth individuals, asset managers, hedge funds and private equity play a key role in this market, it found.

As conventional bank lending has been squeezed by tighter capital rules and other forces, alternative lending options have sprung up to fill the gap, although ironically banks often still play a role as intermediaries in such transactions.

The survey, of over 360 respondents split evenly between senior finance executives at corporates and senior investors across Europe, showed that while bank lending remains the largest source of funding for European corporates, accounting for on average 48 per cent of all funding, alternative finance is a solid component of the funding mix.

Accounting for 33 per cent overall, it continues to plug the gap left by the sharp decline in bank lending the world witnessed immediately after the financial crisis. Capital markets accounts for 19 per cent.

"An undeniable factor in its development is the involvement of banks in transactions as intermediaries – they have a crucial role to play in matching up investors who have capital to put to work with borrowers keen to raise funds in order to realise their business plans. What the market needs to do now is continue the educational drive around best practice and standardisation that began last year, so it can really flourish," Philip Smith, a partner in Allen & Overy’s finance practice, said.

Some 44 per cent of investors said they plan to increase funding for small businesses, with almost two-thirds (64 per cent) forecasting an increase to medium enterprises over the next five years.

The survey was conducted between 31 August 2016 and 14 September 2016, among 362 respondents in six European markets: France, Germany, Italy, Spain, the UK and Benelux.

Corporate respondents were split evenly between medium and large companies and across all major commercial sectors excluding financial services. Respondents all have substantial decision-making input over their company’s funding arrangements.

Investor respondents were split between organisations including private debt funds, asset managers, hedge funds, insurance companies, family offices, pension funds, private equity firms, high net worth individuals, peer-to-peer and crowdfunding platforms, and others.