2. Borrowing by Businesses and Households

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Purpose and Framework Overview 1. Asset Valuations 2. Borrowing by Businesses and Households 3. Leverage in the Financial Sector 4. Funding Risks 5. Near-Term Risks to the Financial System

2. Borrowing by Businesses and Households

Vulnerabilities from business and household debt remained moderate

Balance sheets of nonfinancial businesses and households remained solid in aggregate. The level of total private nonfinancial-sector debt continued to grow more slowly than GDP, with the debt-to-GDP ratio falling to levels not seen since the early 2000s (figure 2.1). The drop in the overall debt-to-GDP ratio was driven by declines in the ratios for both the business and household sectors (figure 2.2). Business debt-to-GDP (black line) continued edging down but remained elevated compared to its historical range. The household debt-to-GDP ratio (blue line) also continued declining and remained at more than 25-year lows.

Figure 2.1. The total debt of businesses and households continued to grow more slowly than GDP

Figure 2.2. Both business and household debt-to-GDP ratios continued to fall

For additional context, table 2.1 shows the outstanding amounts and recent historical growth rates of different forms of debt owed by nonfinancial businesses and households as of the fourth quarter of 2025.

Table 2.1. Outstanding amounts of nonfinancial business and household credit

Item	Outstanding (billions of dollars)	Growth, 2024:Q4–2025:Q4 (percent)	Average annual growth, 1997–2025:Q4 (percent)
Total private nonfinancial credit	43,144	3.3	5.3
Total nonfinancial business credit	22,209	3.5	5.7
Corporate business credit	14,183	3.5	5.2
Bonds and commercial paper	8,791	3.2	5.5
Bank lending	1,905	.0	3.3
Leveraged loans¹	1,380	12.6	12.9
Noncorporate business credit	8,027	3.4	6.7
Commercial real estate credit	3,368	2.4	5.9
Total household credit	20,935	3.2	4.9
Mortgages	13,767	2.9	4.9
Consumer credit	5,107	3.2	5.0
Student loans	1,842	3.6	7.0
Auto loans	1,562	−.2	5.0
Credit cards	1,324	2.1	3.4
Nominal GDP	31,442	5.4	4.7

Note: The data extend through 2025:Q4. Outstanding amounts are in nominal terms. Growth rates are nominal and are measured from Q4 of the year immediately preceding the period through Q4 of the final year of the period. The table reports the main components of corporate business credit, total household credit, and consumer credit. Other, smaller components are not reported. The commercial real estate (CRE) row shows CRE debt owed by both non-financial corporate and noncorporate businesses as defined in Table L.220: Commercial Mortgages in the "Financial Accounts of the United States." Total household-sector credit includes debt owed by other entities, such as nonprofit organizations. GDP is gross domestic product.

1. The amount outstanding shows institutional leveraged loans and generally excludes loan commitments held by banks. For example, lines of credit are generally excluded from this measure. Average annual growth of leveraged loans is from 2000 to 2025:Q4, as this market was fairly small before then. Return to table

Source: For leveraged loans, PitchBook Data, Leveraged Commentary & Data; for GDP, Bureau of Economic Analysis, national income and product accounts; for all other items, Federal Reserve Board, Statistical Release Z.1, "Financial Accounts of the United States."

Business debt growth was flat, and debt-servicing capacity was solid overall despite pockets of weakness

The growth rate of nonfinancial business debt adjusted for inflation fell to just below negative 1 percent over the second half of 2025 (figure 2.3). Net issuance of high-yield bonds, unrated bonds, and leveraged loans minus retirements and repayments grew modestly during the second half of 2025, mostly driven by positive leveraged loan issuance (figure 2.4). Private credit, which consists of loans to businesses from nonbank lenders such as private credit funds and BDCs, continued to grow at a solid pace, albeit slower than in previous years.

Figure 2.3. Business debt adjusted for inflation fell moderately during the second half of 2025

Figure 2.4. Net issuance of risky debt was modest during the second half of 2025

Among publicly traded nonfinancial firms, gross leverage—the ratio of debt to assets—continued to edge down through the second half of 2025 but remained high relative to its history (figure 2.5). Net leverage—the ratio of debt less cash to total assets—also remained elevated. The median ICR for non-investment-grade firms stayed low, in the bottom quartile of its historical distribution (figure 2.6). In contrast, ICRs for investment-grade borrowers, which account for nearly 70 percent of all outstanding debt among publicly traded nonfinancial firms, remained robust.

Figure 2.5. Gross leverage of publicly traded nonfinancial firms ticked down but was still high by historical standards

Figure 2.6. Interest coverage ratios, which indicate firms' ability to service their debt, remained solid

In contrast with public firms, privately held firms tend to have less access to capital markets and primarily borrow from banks, other institutional investors through the leveraged loan market, and various other providers of private credit. Privately held firms account for roughly 60 percent of the total outstanding debt of U.S. nonfinancial firms. Riskier debt owed by privately held firms—primarily leveraged loans and private credit—has continued to grow at a solid pace, albeit slower than in previous years, and currently makes up about 10 percent of total outstanding nonfinancial business debt.

Gross leverage—the ratio of debt to assets—of privately held firms with commercial and industrial loans from banks dropped and remained below pre-pandemic levels (figure 2.7). However, debt-servicing capacity remained low for some of these firms, especially those with elevated leverage and high use of floating-rate debt combined with a short-duration maturity structure.

Figure 2.7. Firms with commercial and industrial bank loans lowered their leverage

For leveraged loans, the share of newly issued loans to large corporations with debt multiples—defined as the ratio of debt to earnings before interest, taxes, depreciation, and amortization—of 4 or more increased moderately and remained above the historical median (figure 2.8). Gross and net leverage ratios were largely unchanged from the previous report at levels above their historical medians. In terms of debt-servicing capacity, the median ICR for leveraged loan borrowers stayed near its historical low. Further, while the volume-weighted default rate on leveraged loans stayed below its historical median, defaults including distressed exchanges—which reflect distressed loans that have been renegotiated between the borrower and the lender—remained relatively high (figure 2.9).

Figure 2.8. Newly issued leveraged loans with debt-to-EBITDA multiples of 4 or more increased moderately and stayed above the historical median

Figure 2.9. The realized default rate on leveraged loans remained well below its previous peaks

In private credit markets, loan defaults remained at relatively low levels, but the elevated usage of payment-in-kind (PIK) provisions indicates some borrowers may face repayment difficulties.⁴

Credit was flat to small businesses, and delinquencies remained above pre-pandemic levels

According to the March 2026 National Federation of Independent Business's Small Business Economic Trends Survey, the share of firms that borrow regularly has flattened out since the beginning of the year following a protracted decline.⁵ According to data from the Small Business Lending Survey from the Federal Reserve Bank of Kansas City, measures of small business loan originations were little changed during the second half of 2025, and banks continued to tighten credit standards.⁶ Over the past two years, interest rates on small business loans have declined in line with the broader interest rate environment but remain near the top of the range observed since 2008. Short-term (up to 90 days) delinquency rates edged down but remained above pre-pandemic levels. Long-term (more than 90 days) delinquency rates have leveled off recently but also remained elevated compared to levels before the pandemic.

Outstanding household debt adjusted for inflation was little changed

Outstanding household debt adjusted for inflation continued to be roughly flat, as it has been over the past two years. While the majority of that debt is owed by households with prime credit scores, the share currently owed by households with a subprime credit rating has risen modestly, reflecting in part the rise in consumer delinquencies and the resulting migration of some borrowers from the prime and near-prime credit score categories to the subprime credit score category (figure 2.10). The ratio of total required household debt payments to total disposable income (the household debt service ratio) inched up since the previous report.

Figure 2.10. Household debt was largely unchanged

Mortgage credit risk remained low

Mortgage debt accounted for roughly three-fourths of total household debt. Housing leverage—measured as outstanding mortgage loan balances relative to home values—remained subdued (figure 2.11). When measured relative to either market prices (blue line) or an estimate of home values from a model using rents and other market fundamentals (black line), outstanding mortgage balances continued to sit well below previous peaks. New mortgage extensions ticked up modestly for borrowers with prime credit scores (the group with the largest share) and were flat for borrowers with near-prime or subprime credit scores over the past year (figure 2.12).

Figure 2.11. Measures of housing leverage stayed significantly below their peak levels

Figure 2.12. New mortgage extensions were largely unchanged

The overall mortgage delinquency rate ticked up in the fourth quarter of last year but remained at the lower end of its historical distribution (figure 2.13). Overall mortgage delinquency rates stayed low due to large home equity cushions and strong underwriting standards (figure 2.14). However, some distress is evident among a small subset of borrowers who purchased homes with low down payments in recent years, especially among borrowers with FHA and VA loans, as slower house price growth leaves some of them with little equity cushion. As of the fourth quarter of 2025, the early payment delinquency rate—the share of balances becoming delinquent within one year of mortgage origination—among near- and subprime borrowers remained somewhat above the median of its historical distribution.

Figure 2.13. Mortgage delinquency rates remained close to the low end of their historical distribution

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Note: Loss mitigation includes tradelines that have a narrative code of forbearance, natural disaster, payment deferral (including partial), loan modification (including federal government plans), or loans with no scheduled payment and a nonzero balance. Delinquent loans in both series are loans reported to the credit bureau as at least 30 days past due.

Source: Federal Reserve Bank of New York Consumer Credit Panel/Equifax.

Figure 2.14. Very few homeowners had negative equity in their homes

Consumer delinquencies remained high by historical standards

Consumer debt, consisting primarily of student, auto, and credit card loans, accounted for the remaining one-fourth of household debt. Balances were broadly unchanged in inflation-adjusted terms for student and auto loans and edged up for credit card loans relative to the previous report (figure 2.15).

Figure 2.15. Consumer debt balances were largely unchanged for student and auto loans but moved up for credit cards

The average maturity of auto loans at origination for used cars remained near historical highs for most borrowers (figure 2.16). On balance, longer-maturity loans tend to have higher default risks, partly because such loans have a higher risk of falling deep into a negative equity position. The share of all auto loan balances in delinquent status inched up from the previous report and remained elevated at the 90th percentile of its historical distribution (figure 2.17).

Figure 2.16. The average maturity of loans at origination for used cars remained elevated

Figure 2.17. Auto loan delinquencies stayed well above the historical median

The stock of outstanding credit card debt shifted slightly to subprime borrowers over the past year, driven in large part by prime and near-prime borrowers transitioning into the subprime rating category (figure 2.18). Credit card delinquency rates edged down in the fourth quarter of 2025 but remained elevated relative to the past 10 years (figure 2.19). The stabilization of credit performance has been broad based, with delinquency rates leveling off across credit score and income groups.⁷ The overall increase in credit card delinquencies since early 2022 was attributable primarily to elevated delinquencies among borrowers with nonprime credit scores and reflected in large part looser underwriting standards and large growth in inflation-adjusted revolving credit over the pandemic period.

Figure 2.18. Credit card balances across borrowers were up slightly

Figure 2.19. Credit card delinquencies leveled off at their long-term median

The outstanding stock of student loan debt remained below its pre-pandemic level, and delinquencies stayed high, but within the range seen over the past decade. The high levelof delinquencies reflected the resumption of student loan repayments and reporting of delinquent loans to credit bureaus that began in October 2024. However, student loan borrowers have not yet shown much greater difficulty in meeting their non-student loan debt payments relative to the overall population.

References

4. PIK provisions allow borrowers to defer interest payments by adding them to the loan principal, which preserves liquidity but could indicate credit quality deterioration. Return to text

5. This survey's data are available on the National Federation of Independent Business's website at https://www.nfib.com/surveys/small-business-economic-trends. Return to text

6. This survey's data are available on the Federal Reserve Bank of Kansas City's website at https://www.kansascityfed.org/surveys/small-business-lending-survey/. Return to text

7. Income and credit score are not strongly correlated; see Rachael Beer, Felicia Ionescu, and Geng Li (2018), "Are Income and Credit Scores Highly Correlated?" FEDS Notes (Washington: Board of Governors of the Federal Reserve System, August 13), https://doi.org/10.17016/2380-7172.2235. Return to text

Last Update: May 28, 2026

Financial Stability Report - May 2026