The mispriced middle: why Mexico's mid-market credit gap is an opportunity, not a warning

There is a number that gets repeated in every conversation about Mexican credit, usually as a lament: only 12.1% of companies with up to 100 employees used new bank credit in the first quarter of 2026, versus 20.4% of larger companies, according to Banxico's latest survey. In Brazil, a comparable measure of small business credit access runs closer to 40%. The standard interpretation is that this is a problem. We read it differently. A market this skewed is not telling you the middle is uninvestable. It is telling you the middle is unpriced.

The distinction matters, because the two readings lead to opposite decisions. If the mid-market is uninvestable, you avoid it. If it is merely unpriced, you underwrite it, one company at a time, and you earn the premium that exists precisely because most capital cannot be bothered to do the work. Howard Marks has a line we return to often: you cannot do the same things others do and expect to outperform. In Mexican mid-market credit, the consensus behavior is to not show up. That is usually where the interesting returns live.

It helps to understand why the gap exists, because the reasons are structural rather than a verdict on credit quality. Mexican banks are organized around collateral and standardized underwriting. A mid-sized company with strong cash flow but a light fixed-asset base does not fit the template, and per the ENAFIN 2024 survey from CNBV and INEGI, lack of collateral is a leading reason for rejection. The banks are not wrong given their cost structure and their regulatory incentives. They are simply optimized for a different borrower. The result is a large population of profitable, disciplined companies that are creditworthy on a cash-flow basis and unbanked on a collateral basis.

This is the space private credit was built for. Direct lending underwrites the business rather than the balance sheet, structures to the borrower's actual cash flows, and prices for the risk it takes. The instrument itself is attractive in the current environment: these are typically senior secured, floating-rate loans, which means the lender sits high in the capital structure and is compensated as base rates move. Globally, first-lien direct lending spreads have run near 500 basis points against roughly 332 for broadly syndicated loans, and middle-market deals have carried an all-in yield premium of over 200 basis points versus large corporates, according to LSEG LPC. The premium is not a reward for taking reckless risk. It is a reward for illiquidity and for doing underwriting that does not scale into an index.

None of this works without discipline, and it is worth being explicit about the risks, because a lender who only tells the upside is not a lender we would trust. Cash-flow lending lives or dies on the durability of the cash flow. It demands real diligence into customer concentration, working-capital cyclicality, and the quality of the management team, because in the mid-market the business and the founder are often the same risk. Structure is the protection: sensible leverage, kept well below the sub-4.5x debt-to-EBITDA levels seen on larger middle-market buyouts, meaningful covenants, and genuine downside protection rather than covenant-lite documents borrowed from a frothier market. The floating-rate feature that helps in a high-rate environment also raises the borrower's debt-service burden, so the underwriting has to stress-test the company's ability to carry the loan through a cycle, not just at origination.

The timing is not incidental. Mexico is absorbing a structural wave of supply-chain relocation, and the mid-sized suppliers, logistics operators, and service firms that sit underneath the headline manufacturing investment are exactly the companies that need growth capital and cannot get it from a bank. At the same time, Mexican institutional capital, including the AFOREs, is beginning to seek diversified credit exposure and yield, while the legal and structural framework for private credit in Mexico remains underdeveloped relative to the demand, as noted in recent market commentary. That combination, real borrower demand, nascent institutional supply, and an immature market structure, is the setup in which an early, disciplined lender can build both a return stream and a franchise.

Our interest here is not to originate loans at volume. It is to be the capital that understands the business, structures financing to fit, and sits on the same side of the table as the entrepreneur, with the patience to hold through a cycle rather than to churn a portfolio toward an exit date. Lending well to a good mid-market company is often the start of a longer relationship, not a transaction, and that relationship can extend into equity, follow-on capital, and partnership as the business grows.

The concentration of Mexican credit in the largest borrowers is usually read as a sign of dysfunction. We read it as a mispricing that disciplined capital can correct, one company at a time, to the benefit of the borrower and the lender alike.

At MountainStone we build and invest in opportunities like this one. If you are financing, operating, or backing a company in this space, we would welcome the conversation.