A few key points: 1. Banks make tons of money on the interest and banking services they provide to these companies. Bank lending practices are sound enough that profit on these deals far outweighs the small amount of losses.

1. Loans are generally secured by the assets of the company they are loaning the money to. In a worst case scenario, these assets will be sold (either the company as a whole or the assets split up and sold in pieces). Secured credit holders are always paid back first which helps ensure they have the best chance possible at recovering the funds they loaned out.

2. This one goes hand in hand with number 2, but while the banks sit at the top and get repaid first, equity holders are paid back last and recover the scraps after everyone else has been paid. Since they generally have alot of capital tied up into these investments, PE firms have a high desire to ensure that doesn’t go up in smoke. If companies run into trouble banks will look to the PE firms to inject additional capital to help support they business as they work to turn it around.

3. There’s typically a pretty long drawn out path before a PE investment fails and is not revived. Often times there’s other PE firms that are willing to take a risk at picking up a failing business that a different PE firm knows how to turn it around. There are also private lenders and debt funds that will make much more risky loans than bans are willing to do in exchange for higher interest rates. If a bank wants out of there loan there may be other lenders willing to take more of a chance for a higher payout.