Why Private Credit is Ideal for Growth-Stage Businesses

Introduction

For growth-stage businesses, securing the right funding is critical to scaling operations, expanding market share, and achieving long-term goals. While equity financing often takes centre stage, private credit offers a compelling alternative that many businesses may find more aligned with their objectives. In this article, we explore why private credit is increasingly becoming a preferred option for growth-stage businesses and how it compares to equity financing in the longer term.

The Case for Private Credit

Private credit, often referred to as direct lending, involves non-bank institutions providing bespoke debt financing solutions. This form of funding has seen significant growth in recent years, with investors recognising its potential to deliver steady returns and businesses appreciating its flexibility.

Here’s why growth-stage businesses should consider private credit:

1. Preservation of Equity Equity financing often requires businesses to relinquish a portion of ownership. For founders and early investors, this can dilute control and future earnings. Private credit, on the other hand, allows businesses to secure capital without ceding equity, ensuring that founders retain their stake and maintain strategic control over their ventures.
2. Flexible and Tailored Solutions Unlike traditional bank loans, private credit providers are typically more flexible. They can structure bespoke financing solutions that align with a business’s cash flow, growth trajectory, and repayment capacity. This adaptability is particularly valuable for growth-stage businesses with unique needs or irregular revenue streams.
3. Faster Access to Capital Growth-stage businesses often operate in fast-paced environments where timely funding can make the difference between capturing a market opportunity or losing out. Private credit providers tend to have streamlined processes, allowing businesses to access capital faster than through traditional equity fundraising rounds.

Equity Financing: The Hidden Costs

While equity financing may seem appealing due to its lack of immediate repayment obligations, the long-term costs can outweigh the initial benefits:

1. Dilution of Ownership With each round of equity financing, founders and early investors see their shareholdings diluted. Over time, this can significantly impact their decision-making authority and the share of profits they receive when the business achieves success.
2. Pressure from Investors Equity investors typically expect significant returns on their investment, often driving businesses to prioritise rapid growth over sustainable strategies. For some growth-stage companies, this can lead to undue pressure and a misalignment of long-term goals.
3. Loss of Strategic Flexibility Equity financing often comes with strings attached, such as giving investors seats on the board or veto rights. These conditions can limit a company’s ability to make autonomous decisions, particularly as it scales.

Balancing Cost and Control

Private credit bridges the gap between the need for growth capital and the desire to retain control. While private credit requires regular repayment and often incurs interest costs, these are predictable expenses that can be planned for within a company’s growth strategy. Compared to the indefinite loss of equity and profit shares associated with equity financing, private credit can be a more cost-effective solution in the long term.

Who Benefits Most from Private Credit?

Private credit is particularly suitable for businesses that:

• Have a proven track record or recurring revenue streams to support repayment.
• Are scaling rapidly and need immediate access to capital.
• Want to retain equity and maintain decision-making autonomy.
• Operate in industries where market conditions are favourable for debt financing.

Conclusion

Private credit is more than just an alternative to equity financing—it’s a strategic tool that empowers growth-stage businesses to scale without sacrificing control or profitability. By preserving equity, offering tailored solutions, and enabling faster access to capital, private credit stands out as a practical, client-centric option.

If you’re exploring funding options for your business, Kingsbury & Partners can help. Our expertise in private markets and tailored financial solutions ensures you find the right strategy to achieve your growth ambitions. Contact us today to learn more about how private credit can work for you.