In private credit, problems rarely start with lending. They start with how lending is financed. A platform can originate loans consistently and still struggle to grow if external capital does not move in step with those loans. When funding and lending follow different rhythms, scale introduces risk rather than removing it.

Funding for lending is the term investors use to describe a specific situation: private capital is raised to finance loans, and investor returns are paid from borrower repayments. The exposure is to lending activity itself, not to a lender’s balance sheet. It is not a product or a facility. It is a description of how capital is put to work.

Understanding that distinction is essential, because it explains why funding for lending has become a central feature of modern private credit.

Where non-bank financial institutions fit into this market

Funding for lending is most visible in the non-bank lending market. Non-bank financial institutions (NBFIs) now account for a significant share of new credit origination in segments that banks no longer prioritise. In many developed markets, non-bank lenders are responsible for a third or more of new lending outside residential mortgages, with higher penetration in specialist and small-ticket segments.

The scale is material. Global private credit assets have grown from well under USD 1 trillion before the financial crisis to USD $1.7tn (Prequin, 2024) and is expected to exceed USD $2.5bn for 2025 (Prequin, 2025), with a meaningful portion allocated to lending strategies backed by receivables rather than corporate balance sheets. A large share of this capital is deployed through NBFIs that originate loans and rely on external investors to finance them.

The types of loans funded through this model are typically granular and operationally intensive. Common examples include trade receivables finance, invoice discounting, small and medium-sized business loans, consumer instalment credit, point-of-sale finance, and short-duration working capital facilities. These loans are often short term, amortising, and backed by identifiable cash flows. They generate frequent repayments rather than relying on a single exit or refinancing event.

This combination of scale and loan type explains why funding for lending has become central to modern private credit. It reflects how credit is actually being originated and serviced, not how it is described in traditional lending frameworks.

Why the issue appears as lending grows

Small lending businesses can operate with simple funding. Founder capital, equity, or a single bilateral line is often enough. At that stage, inefficiency is manageable. As volumes increase, the weakness shows.

The first sign is not higher defaults. It is funding friction. Capital arrives late. It leaves early. Decisions about lending start to depend on refinancing schedules rather than borrower quality. Growth remains possible, but it becomes uneven and fragile.

Funding for lending addresses this by tying capital to what actually happens on the ground. Loans are written. Borrowers repay. Capital follows those movements instead of operating on its own timetable.

What funding for lending actually describes

Funding for lending describes the process of allocating investor capital against pools of loans or receivables. The loans may be small or large. They may be consumer, business, or trade related. What matters is that the investor’s exposure is defined by the loan pool and serviced by borrower cash flows.

Non-bank lenders originate the loans. Private credit investors provide the capital that finances those loans. As the loan pool grows, investor exposure increases. As borrowers repay, exposure reduces. The link is direct.

That exposure can be delivered through different legal structures. In many cases it is implemented through securitisation vehicles or Credit Linked Notes. The structure matters, but it does not define the concept. The concept is defined by how risk and cash flows are connected.

How capital behaves when it is funding lending

When capital is used to fund lending, it does not sit idle. It is deployed as loans are originated and returns as borrowers repay. Performance is reflected through cash distributions and protective features built into the structure.

If lending performs as expected, cash flows continue and investor exposure reduces gradually over time. If performance weakens, protections activate. Distributions may slow. Exposure reduces faster. There is no single moment when everything resets.

This gradual adjustment is the point. Investors are not forced into binary outcomes. Lenders are not forced into emergency refinancing. The structure responds to what borrowers are doing, not to market headlines.

How investors look at funding for lending

From an investor’s perspective, funding for lending is judged by how cash flows perform in practice, not by how the structure is described. The starting point is always the same: how borrowers repay, how stable that repayment pattern is, and how quickly performance issues surface.

Benefits of Fund for Lending:

  • Granular borrower exposure
    Capital is deployed across large pools of borrowers rather than a small number of obligors. Risk is driven by aggregate repayment behaviour, not by single-credit outcomes.
  • Direct exposure to the real economy
    Cash flows are generated by day-to-day economic activity such as trade, consumption, payroll, and working capital needs. Returns are linked to what businesses and households actually do, not to financial engineering or exit timing.
  • Short-duration and amortising cash flows
    Many receivables-based and instalment loans repay frequently. Capital returns through borrower payments rather than waiting on refinancings or asset sales.
  • Earlier visibility on deterioration
    Frequent repayments mean that changes in behaviour show up quickly. Exposure can adjust over time rather than through sudden repricing or write-downs.
  • Access to sectors banks underserve
    Areas such as receivables finance, small business lending, and point-of-sale credit tend to remain active even when bank balance sheets contract.
  • Portfolio-level risk distribution
    Outcomes are shaped by thousands of small repayment decisions rather than a handful of refinancing events, making losses more dispersed and easier to manage.

For investors building resilient private credit portfolios, funding for lending offers exposure that is closer to economic activity on the ground, while still benefiting from structure and discipline.

Why downturns make funding for lending more relevant

Economic downturns change who supplies credit. Banks usually reduce activity as capital pressure increases. Lending demand does not disappear, but it shifts to non-bank lenders who can operate with different constraints.

In these periods, funding for lending becomes more visible. Structures tied to borrower cash flows continue to function as long as repayments continue. Capital adjusts gradually rather than disappearing overnight.

This pattern has repeated across cycles. After the financial crisis, non-bank lenders expanded as banks pulled back. Similar dynamics emerge whenever balance-sheet pressure rises. Investors allocating capital to funding for lending gain exposure to credit demand that persists even when traditional channels slow.

Why legal structure still matters

Although funding for lending is a concept, legal structure determines whether it works as intended. Investors need certainty around cash flow control, asset ownership, and enforcement.

For that reason, funding-for-lending exposures are often implemented through securitisation or note issuance frameworks in jurisdictions such as Luxembourg. These frameworks allow loan assets to be separated from the operating company and managed according to clear rules.

Closing perspective

Funding for lending is not a theory about private credit. It is a description of how capital is already being deployed into loan books that generate cash every day. Investors provide capital. Non-bank lenders originate loans. Borrowers repay. Returns follow those repayments. When that chain works, the structure holds. When it weakens, it shows quickly.

That clarity is why the model has gained ground. It does not depend on refinancing windows, sponsor support, or favourable market conditions. It depends on whether invoices are paid, sales are made, and instalments arrive on time. Those are simpler questions, but they are harder to avoid.

As private credit continues to grow, capital is moving away from structures that rely on episodic exits and toward those that are serviced by operating activity. Funding for lending sits squarely in that shift. It is not a niche concept. It is how a growing part of the market now funds lending in practice.