Growth debt has emerged as a key financing tool as equity and bank lending tightens heading into 2026.
Growth debt is poised to play a larger role in 2026 as equity becomes harder to raise and traditional lending capacity continues to contract, according to an outlook from Partners for Growth (PFG).
This type of financing is tailored to early-stage companies as a supplement to equity financing.
Andrew Kahn, co-founder and chief executive of the private credit firm, said demand for capital from technology companies remains strong across stages but the supply landscape had shifted markedly.
“As we enter 2026, one thing remains constant: companies still need capital to grow. What is changing is the supply.”
He noted that venture capital and private equity investors are expected to stay cautious, with bets “increasingly concentrated in 2026”.
Even if public markets remain supportive, equity investors are likely to focus on a smaller number of large opportunities, particularly in artificial intelligence (AI).
“This will leave many strong companies in sectors like SaaS, fintech, healthtech, and robotics facing slower fundraising processes and challenging valuation trends,” Kahn said.
As equity becomes harder to secure on favourable terms, Kahn said PFG expects more founders to turn to growth debt to preserve ownership and sustain expansion.
Kahn also pointed to a tightening banking environment, especially in the United States. He said the commercial banking sector has continued to consolidate with larger institutions writing “fewer but bigger checks” and concentrating on less risky sectors and companies with the strongest venture-capital backing.
Smaller, founder-focused banks have “pulled back, merged, or shifted their risk appetite since 2023”, leaving many high-growth businesses facing a financing gap.
Outside the United States, Kahn said these dynamics were “often even more pronounced”, noting that traditional banks tended to be slower, more conservative, and less suited to fast-growing technology companies.
“This is where specialist private credit firms are playing a vital role,” he said.
Founders are now rethinking how they structure their funding, with companies blending venture investment and structured credit.
As such, growth debt is becoming increasingly regarded as a founder-friendly way to “time raises against strategic business milestones, match capital with growth, and avoid unnecessary dilution”, he said.
This approach is particularly relevant for revenue-generating businesses, asset-backed models, and companies with strong unit economics.
Limited partners are also reassessing their exposure across private markets after years of heavy allocations to direct lending and private equity-backed credit. Kahn said investors were seeking more diversification and resilience.
“Growth debt offers exposure to founder-led companies in high-growth sectors with less volatility than venture and growth equity and more downside protection,” he said.
He added that regional ecosystems are maturing at different speeds. Saudi Arabia and the broader Gulf Cooperation Council (GCC) continue to show strength, supported by national development agendas and government-backed innovation programs.
Southeast Asia and Australia remain healthy as their startup ecosystems mature, and seek more sophisticated financing options. Latin America also offers opportunity, although currency volatility and political cycles require “more careful structuring”.
In the United States, Kahn said the intense equity-market focus on artificial intelligence has created overlooked opportunities across other technology verticals, where growth debt could fill “critical financing gaps”.
In the United Kingdom and Europe, ongoing macroeconomic uncertainty persists, but sectors including fintech, healthcare, and deep tech continue to show resilient growth trajectories.
Kahn concluded that growth debt is positioned to become a more important component of institutional allocation strategies as capital supply tightens and private markets continue to evolve.
