Private credit set to overshadow equity funding in 2026 as banks retreat and innovation firms seek growth debt

Investing.com’s report that Andrew Kahn, Co‑Founder and CEO of Partners for Growth, expects demand for growth capital to remain strong in 2026 highlights a shifting supply landscape that looks set to push more companies toward private credit. According to the original report, Kahn argues that while businesses continue to need capital to expand, “what is changing is the supply,” with equity markets becoming more selective and banks retrenching.

Kahn predicts equity funding will be harder to secure and increasingly concentrated, with venture capital and private equity channelling larger amounts into a narrower cohort of winners , particularly those tied to artificial intelligence. The company said in a statement, and Kahn told Investing.com, that this dynamic will leave many firms in areas such as SaaS, fintech, healthtech and robotics facing slower fundraising cycles and pressure on valuations, prompting founders to “rely on growth debt to preserve ownership and maintain their growth plans.”

Bank behaviour is a central part of this picture. Kahn notes that in the United States consolidation in the commercial banking sector has reshaped the innovation‑lending landscape: larger banks are doing fewer, larger deals and concentrating on less risky sectors or companies with the strongest venture backing, while smaller, founder‑oriented banks have pulled back or merged since 2023, leaving a widening financing gap. Outside the US, he says, traditional banks are often too slow or conservative for fast‑growing firms, creating room for specialist private credit providers to step in.

Recent industry moves and regulatory shifts underline that private credit is not operating in isolation. JPMorgan’s decision earlier in 2025 to set aside an additional $50 billion to expand direct lending illustrates how large banks are increasing their footprint in the sector. HSBC likewise has injected billions into private credit funds to build scale, and Moody’s has warned about rising retail exposure to private credit, noting liquidity and stability concerns as the asset class grows. These developments show both the appetite for and the risks attached to the expanding private‑credit ecosystem. Industry data shows the market is sizeable and rapidly evolving.

Regulatory and macro prudential actions are also shaping the outlook. The Bank of England has launched a stress test of the global private equity and private credit industries to assess resilience to major financial shocks, with results due in early 2027. Meanwhile, US regulators have recently moved to relax long‑standing leveraged‑lending guidance, a change that is expected to intensify competition between banks and private lenders and could bring more leveraged loans under a broader set of credit‑risk principles. The company said in a statement that such shifts may alter banks’ incentives and the competitive balance between traditional and non‑bank lenders.

Against this background, Kahn expects more companies to blend venture funding with structured credit, using growth debt as “a proactive and founder‑friendly tool” to align capital with milestones, support expansion and limit dilution. This approach is particularly relevant for businesses with established revenue, asset‑backed models or strong unit economics, he says. According to the original report, limited partners are reassessing portfolio construction after years of heavy exposure to direct lending and private equity‑backed credit, and are increasingly seeking diversification and more resilient return sources.

Regional variations matter. Kahn highlights continued strength in Saudi Arabia and the broader GCC, supported by national development agendas and government‑backed innovation programmes. Southeast Asia and Australia are noted as healthy markets as their startup ecosystems mature, while Latin America is seen as offering opportunity but requiring careful deal‑structuring because of currency and political risks. In the US, the equity market’s intense focus on artificial intelligence has left “overlooked pockets of opportunity” in other technology sectors where growth debt can bridge funding gaps. In the UK and Europe, despite macroeconomic headwinds, fintech, healthcare and deep tech continue to show resilient growth trajectories.

Market participants should weigh both opportunity and risk. Growth debt can provide founders with non‑dilutive capital and institutional investors with exposure to high‑growth, founder‑led companies with stronger downside protection than pure venture equity. At the same time, Moody’s caution about increased retail access to private credit and the Bank of England’s stress testing underline potential systemic considerations that warrant careful oversight and portfolio governance.

As private‑market conditions evolve in 2026, the interplay between concentrated equity allocation, expanding bank and non‑bank direct‑lending programmes, regulatory change and regional policy initiatives will determine how prominent growth debt becomes in financing the next wave of technology and innovation companies. According to the original report, Kahn expects this confluence of forces to make growth debt a more meaningful component of institutional portfolios next year.