A guide to private credit financing for private companies

Author: Kevin Dowd
Read time: 10 minutes
Published date: October 31, 2025

Learn all about the different types of private credit financing, and how it differs from other forms of debt financing for companies.

Contents: How does private credit affect future fundraising?

What is private credit financing?

Private credit financing is a type of corporate financing in which companies raise loans from non-bank lenders such as specialized private credit firms, asset managers, private equity (PE) firms, or hedge funds. While many types of companies can and do raise private credit, this type of lending is often associated with the private markets, particularly PE-backed companies. Private credit has become a common source of the loans that many PE firms use as a key component in leveraged buyouts.

Because a private credit loan does not typically involve broad syndication, the lender and borrower can negotiate terms directly to meet their specific needs, rather than structuring the loan so it will attract other investors. Some of the key points of negotiation can include interest rates, repayment schedules, covenants, and collateral requirements.

Private credit vs. other types of financing

To better understand how private credit financing works and its place within the economy, consider some of the other ways in which companies can raise new financing:

• Public equity financing is when a publicly traded company issues and sells new shares for trading on a stock exchange, such as the NYSE or Nasdaq. Anyone with access to a brokerage account can invest in public equity.
• Private equity financing is when a company issues and sells new stock through a privately arranged transaction, such as a venture capital (VC) round. The two main segments of PE are the VC market and the buyout market, which is also commonly referred to on its own as “private equity.”
• Public debt financing is when a company issues bonds or other debt instruments that may or may not trade on a public exchange such as the NYSE Arca or via the over-the-counter market.
• Bank lending is when a company raises debt through a bank, which has historically been the primary alternative to public debt.

Private credit has gained significant traction relative to traditional bank debt since the 2008 financial crisis, driven largely by regulatory changes that constrained bank lending and made it more costly. This caused many banks to scale back their lending to middle-market companies, particularly those with higher leverage or unconventional financial profiles, and increased demand for the flexible financing offered by private lenders.

Private credit has fewer disclosure requirements than public credit, which can make private loans simpler for in-house finance teams to organize and execute. Private credit also tends to be a less liquid market than public credit, in the same way that PE is less liquid than public equity markets.

Types of private credit

Several different types of loans and debt instruments fall under the umbrella of private credit. These different loans typically serve different purposes, and from the perspective of an investor, they come with varying levels of risk and expected yield.

Senior debt

Senior debt is a loan that takes priority over other debt issued by a company in the event of a bankruptcy or liquidation.

Mezzanine debt

Mezzanine debt is a type of issuance that combines debt but without the priority of senior debt.

Distressed debt

Distressed debt refers to debt issued by a company that is either in default or experiencing some other form of financial difficulty.

Venture debt

Venture debt refers to a loan that’s issued to a startup company that’s backed by VC.

Special situations lending

Special situations lending involves issuing loans to companies in need of financing to support rare or one-off events, such as a company restructuring or an M&A deal.

Asset-based lending

Asset-based lending involves loans that are secured by specific assets, rather than by the general credit of the borrower.

Secured loans and unsecured loans

Many loans in the private credit market are secured. In order to obtain a secured loan, a company puts up some assets as collateral.

Why private credit financing appeals to companies

• Flexible terms: Private lenders are more likely to offer customizable loan structures.
• Easier access to capital: The process of raising private credit financing is typically faster and more streamlined than raising a bank loan.
• Higher leverage: Depending on the company and the situation, private lenders might also be more likely than banks to issue loans that will leave the borrower highly levered.
• Disclosures and oversight: Private loans typically require fewer regulatory disclosures and less regulatory oversight than publicly traded loans.

What are the risks of private credit for founders?

When a company raises capital through private credit, the terms of the loan are typically based on financial projections for the company’s future. If the company falls short of these projections, it may struggle to satisfy the terms of the investment and may be at risk of default.

Conclusion: Private credit is on the rise

Over the past two decades, the general trend is clear: More and more corporate fundraising activity is moving to the private markets. Startups are staying private for longer periods of time before going public or pursuing another exit. The size of the private credit market grew from $2 trillion in 2020 to $3 trillion in 2025, and it’s expected to approach $5 trillion before the decade is out.

Frequently asked questions about private credit financing

Can an early-stage startup get private credit?

Yes, an early-stage startup can raise private credit financing.

What is the difference between private credit and venture debt?

Venture debt is a type of private credit financing, in the same way that a square is a type of rectangle. Private credit refers to any type of loan from a non-bank lender. Venture debt refers to a loan from a non-bank lender that’s specifically raised by a company with VC backing.

How does private credit affect future fundraising?

For a startup, one of the main potential issues of raising private debt financing is that it increases the complexity of a company’s capital stack.