Private credit’s rise is no longer a side story in leveraged finance; it is reshaping fund finance and sponsor-backed lending. For many, the pivot towards private credit funds has become a logical move: capital that is consistent, flexible and scalable is increasingly coming from private credit funds rather than banks – especially where private equity relies on buy-and-build strategies.
Historically, banks dominated fund finance, offering subscription lines and conservative acquisition facilities as part of a broader relationship. That model is now coming under increasing pressure.
Regulation, risk-weighted asset constraints and balance sheet prioritisation have pushed banks toward lower-margin, standardised products. Meanwhile, private equity has moved the other way, leaning into more acquisition-heavy, multi-cycle strategies: roll-ups in fragmented sectors, continuation vehicles, complex secondaries and NAV-based solutions.
This creates a gap. Sponsors want capital that follows their strategy across cycles and structures that banks often cannot provide at the necessary speed, size or flexibility. Private credit has stepped into that gap.
Private credit funds have historically competed on speed and flexibility, Dave Philipp, Executive Managing Director & Head of Fund Liquidity Solutions at Crestline, says.
“This flexibility reflects a strong understanding of borrower objectives and the available collateral base, allowing for fewer structural constraints,” Philipp explains. “As a result, transactions often feature customised covenants, options for cash or PIK interest, tailored cash sweep mechanisms, and the ability to incorporate a broader range of asset classes within a single deal.”
Regulation has been a contributing factor, as banks operate within stricter capital and liquidity frameworks, which can limit appetite for certain structures or leverage levels, Mohith Sondhi, Managing Director of Debt Finance at OakNorth, says.
“Private credit funds naturally have more flexibility in some situations, which has supported their growth. But borrower expectations have also evolved — they want speed, certainty and tailored solutions,” Sondhi adds. “That’s where banks like OakNorth can still differentiate ourselves through disciplined underwriting combined with flexibility and responsiveness.”
An advantage of private credit funds is their ability, and incentive, to be through-the-cycle lenders. Their investors seek illiquid, higher-yielding exposure, not quarterly volatility management. As a result, many private credit platforms aim to stay active when macro headlines often push banks to retrench.
In practical terms, that means private credit remains willing to finance new platforms, bolt-ons and fund-level solutions even in choppier markets, provided the underwriting story holds. For sponsors running multi-year buy-and-build programmes, that predictability of funding is often worth paying a premium for.
The second axis of disintermediation is structural. Private credit funds increasingly avoid rigid leverage formulas in favour of growth-linked, “plug and play” facilities.
Rather than simply lending a fixed multiple of today’s EBITDA, private credit structures can start conservatively at lower earnings levels; build in step-ups and increased capacity as EBITDA scales through organic growth and acquisitions; and embed performance-based covenants that flex as the portfolio diversifies and de-risks.
“We’re seeing private credit funds become increasingly active in areas where some banks have become more constrained, particularly around higher leverage, bespoke structures, and NAV lending. That has created greater liquidity and flexibility for borrowers,” Sondhi says.
This approach is particularly suited to roll-up strategies in fragmented markets – such as IFAs, accountancy, specialist business services and healthcare – where a platform may progress from a modest starting point to a substantially larger, more resilient business over a single fund life.
At the fund level, the same philosophy underpins the rise of NAV and hybrid facilities, continuation-vehicle financing and other bespoke structures that evolve with portfolio realisations and redeployments.
Another driver behind this disintermediation is the combination of institutional scale and specialist credit expertise within private funds. Backed by large capital providers and a decade or more of track record, many private credit platforms have quickly evolved to underwrite and hold larger tickets than before, often without syndication. They are able to move quickly in sectors they have conducted repeated business in by using comparative data to benchmark risk, while also being able to price and structure complex, non-vanilla fund finance that sits below traditional subscription lines.
For sponsors, this means a single private credit partner can often support the journey from initial platform deal, through multiple bolt-ons, to exit or recap, while providing complementary fund-level liquidity along the way.
Recent financing for GPs has been shaped by a slower exit environment and the rise of continuation vehicles, which have increased the amount of capital tied up in GP stakes and carried interest, while fundraising has become more difficult for all but the largest managers, Philipp says. These legacy GP stakes and carry positions can serve as valuable collateral, enabling GPs to access private credit to fund commitments to new vehicles and launch new strategies with greater flexibility than traditional management company financing, he adds. “We are also seeing more managers seeking dry powder to support strategic partnerships or acquisitions in adjacent strategies. Private credit has played a leading role in developing customised GP financing solutions, while banks remain active providers of cash flow–based management company loans.”
Banks are not disappearing from fund finance. They remain critical providers of low-cost, commoditised subscription lines and ancillary services, and for many blue-chip sponsors those relationships are still strategic.
But the higher-margin, more bespoke and strategically important segments of fund finance – NAV-based lending, hybrid structures, complex roll-up and continuation financing – are steadily gravitating toward private credit. As private credit continues to prove it can deliver reliable, growth-aligned capital at scale, the centre of gravity in fund finance is moving with it.
While Philipp expects the fund finance market to continue expanding across borrowers, strategies, and uses of capital, creating sustained opportunities for both banks and non-bank lenders, he adds that banks are likely to remain dominant in sublines but will increasingly rely on syndication and securitisation to manage risk. “Meanwhile, private credit should play a key role in broadening the market, often supported by bank-provided leverage. We also anticipate greater collaboration among banks, private credit providers, and institutional investors, with transactions structured to allocate risk and returns across participants,” he says.
Sondhi agrees: “Banks continue to play a critical role. At OakNorth, we’ve remained very active in fund finance because we see strong long-term growth potential in the sector. Borrowers still value relationship-led lending, transparency, speed of execution, and lenders who can support them consistently through cycles.”
Sondhi continues that we will likely continue to see a more diversified lending market, with private credit growing further in areas requiring greater flexibility or bespoke structuring.
“For banks, the opportunity will be to continue evolving. At OakNorth, we see significant long-term potential in fund finance and remain committed to the sector. Borrowers increasingly want financing partners who can combine disciplined underwriting with speed, certainty and flexibility.”
Ultimately, greater competition and diversity of capital providers should benefit borrowers and drive continued innovation across the lending market.
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