What Founders Must Know About the Rise of Private Debt

Private debt is on the rise. The roots go back to the 2008 financial crisis. As banks tightened lending to small and mid-sized businesses, large investors — pension funds, insurers, sovereign wealth funds — were left hunting for returns in a low-interest world.

According to statistics, private debt assets under management surpassed $1.5 trillion globally in 2024, with no signs of slowing the growth trajectory. Private debt has stayed steady through tough times — from the pandemic to rising inflation. While other markets rose and fell, it kept attracting money, showing investors trust it as a stable, long-term bet.

For entrepreneurs, this wave of capital means private credit funds are no longer operating on the fringes. They now have a main character moment, but they play by different rules than either venture capitalists or banks.

The entrepreneur’s reality

Here’s where things get interesting. A venture capitalist may accept a certain level of chaos in pursuit of growth, while a bank generally offers standardized terms with minimal engagement beyond credit risk. Private debt funds sit in the middle. They want structured deals, covenants that can be enforced and reliable performance.

In one of my own ventures, I learned this the hard way. We had secured a loan from a non-bank lender and assumed quarterly reports would be enough. Instead, they expected rolling forecasts, customer churn data and stress scenarios for downturns. At the time, our finance function wasn’t built to handle that level of scrutiny. The result was sleepless nights trying to backfill reporting systems that should have been in place from day one.

That experience taught me something simple but critical: If you’re considering private debt, you need to start thinking like an institutional investor yourself. Robust accounting, disciplined forecasting and clearly defined KPIs are no longer optional — they are the price of admission.

Where private debt can help

Used wisely, private debt can be an excellent tool for entrepreneurs. Unlike equity, it doesn’t dilute ownership, allowing founders to keep control. For businesses with recurring revenue or steady cash flows, it can unlock growth opportunities that might otherwise be out of reach.

I’ve seen a SaaS company use private credit to fund expansion into new regions without ceding equity, and an ecommerce business cover seasonal working capital gaps with tailored debt structures. In both cases, debt was used not as a crutch but as a lever — financing initiatives with predictable payback periods rather than speculative bets.

Another advantage is flexibility. Unlike banks, private lenders are often willing to shape repayment terms around how your business actually works — seasonal schedules for retailers or milestone-based payments for a software company rolling out new features. That kind of tailoring makes the debt feel less like a burden and more like a tool that moves in step with your cash flow.

The risks you can’t ignore

Of course, debt cuts both ways. Equity investors share risk; debt holders expect to be repaid no matter what. Institutional lenders can be far less flexible than angel investors when things go wrong.

I once managed a company that hit a sudden regulatory roadblock. Our debt covenants required minimum revenue levels, and when we fell short, we triggered a technical default. Negotiating with the lender drained energy that should have gone into fixing the business. The real error wasn’t the debt itself — it was our failure to negotiate enough cushion in the covenants upfront.

How to prepare as a founder

If you’re weighing private debt, preparation matters as much as the deal itself:

1. Build financial maturity early: Get your accounting in order and bring in people who can produce investor-grade reporting.

2. Understand every covenant: Push for terms that allow breathing room in case of a setback.

3. Match debt to predictable outcomes: Expansion into proven markets makes sense; experimental moonshots do not.

4. Keep your use of debt in check: It can be a powerful growth tool, but overloading your balance sheet can suddenly box you in with no room to maneuver.

5. Lenders don’t like surprises, so communicate: Honest updates — good and bad — go a long way.

Looking ahead

Private debt isn’t going away. If anything, its role in financing growth companies will expand as institutional investors continue to pour capital into the space. For founders, the question isn’t whether private credit is good or bad — it’s whether you’re ready for the level of rigor it demands.

In my own experience, debt forced us to professionalize faster than we otherwise might have. It pushed us to create real forecasting models, implement proper governance and be accountable in ways that ultimately strengthened the business.

The best way to look at private debt is not just as another source of money but as a discipline. For entrepreneurs who embrace that discipline, it can become a powerful tool to grow while maintaining control. For those who don’t, it can quickly become a trap.

Private debt is on the rise. The roots go back to the 2008 financial crisis. As banks tightened lending to small and mid-sized businesses, large investors — pension funds, insurers, sovereign wealth funds — were left hunting for returns in a low-interest world.

According to statistics, private debt assets under management surpassed $1.5 trillion globally in 2024, with no signs of slowing the growth trajectory. Private debt has stayed steady through tough times — from the pandemic to rising inflation. While other markets rose and fell, it kept attracting money, showing investors trust it as a stable, long-term bet.