The Selectivity Shift: Why Being Financeable Matters More Than Ever

Private credit continues to attract significant institutional capital. But the latest market signals suggest that having capital available and having that capital deployed are two different things.

Second-quarter results across the market have highlighted softer deal activity, pressure on some private-credit portfolios and continued scrutiny around loan valuations. As private credit's role in corporate finance expands, regulators are also paying closer attention to the risks and interconnections emerging across the market. The European Central Bank's May 2026 Financial Stability Review highlighted valuation uncertainty, leverage and data gaps within private credit, while assessing the potential implications for euro-area financial stability.

For businesses, this distinction matters.

The question is no longer simply whether funding exists. It is whether a business can demonstrate the qualities that give a lender confidence: sustainable cash generation, credible forecasts, resilience under pressure and a capital structure that supports the strategy rather than constraining it.

That changes the way businesses should approach funding.

Preparation is no longer something that happens immediately before a transaction. It is becoming part of how businesses plan for growth, acquisitions, refinancing and investment.

In a more selective market, being financeable can be a competitive advantage.

The Funding Outlook: What We're Watching

IN

• Earlier refinancing conversations
  Businesses are addressing maturities and refinancing requirements before they become urgent.
• Flexible financing structures
  Cost remains important, but flexibility, certainty and strategic optionality are becoming equally relevant.
• Asset-backed and structured lending
  Businesses are looking beyond conventional cash-flow lending to unlock capital across the balance sheet.
• AI-aware underwriting
  As AI reshapes sectors and business models, lenders are paying closer attention to revenue durability, margins and competitive defensibility.
• Funding capacity before strategic commitments
  Understanding what is financeable before pursuing an acquisition, expansion or major investment can create greater strategic clarity

UNDER PRESSURE

• Growth stories without cash-flow visibility
• Funding decisions based solely on headline rates
• Last-minute refinancing
• Capital structures that restrict future flexibility

From Growth Story to Credit Story

For many businesses, the funding conversation starts with the opportunity.

There may be a compelling acquisition to pursue, a new market to enter or an investment programme that could accelerate growth. Management teams understandably focus on the commercial upside and the potential return on capital.

Lenders look at the same opportunity differently.

They need to understand how the business will generate the cash required to service and repay the debt, what happens if the original plan takes longer than expected and whether the proposed structure remains appropriate if trading conditions change.

That means the quality of the credit story matters alongside the quality of the growth story.

Revenue visibility, customer concentration, cash conversion, leverage, management capability, reporting quality and downside resilience all contribute to the lender's assessment. The ability to explain how funding will translate into measurable commercial outcomes matters too.

A business does not need to eliminate uncertainty to attract debt. It needs to demonstrate that uncertainty has been understood and managed.

This is why approaching a funding process solely by refining the business plan can leave a gap between how management sees the opportunity and how a lender assesses it.

Our latest article explores how businesses can prepare for that conversation by looking at their own business through a lender's eyes.

Think Like a Lender Before You Raise Capital

The Price of Capital Is Only Part of the Equation

Interest rates remain an important part of any financing decision. But focusing too heavily on the headline rate can obscure the terms that determine how much freedom a business retains after the facility is signed.

Covenants, security, prepayment provisions, maturity dates and restrictions on additional borrowing can all affect the practical cost of capital.

A lower rate may look attractive today but become less attractive if the accompanying structure limits an acquisition, delays an investment decision or makes refinancing more difficult later. In other words, the cost of capital should be measured not only by what a business pays today, but by the options it retains tomorrow.

For a growing business, flexibility has value.

The right financing structure should therefore be assessed against more than the immediate cost of borrowing. Management teams should consider how the facility will interact with future acquisitions, investment requirements, working capital needs and potential changes in ownership or strategy.

The question is not simply:

What is the cheapest debt available?

It is:

Which structure gives the business the right balance of cost, certainty and strategic flexibility?

Our latest article examines five trade-offs that can sit behind an apparently attractive headline rate.

5 Strategic Trade-offs Behind the Headline Rate

The Refinancing Clock Is Moving

Refinancing can look straightforward when a maturity date is still several years away.

That assumption becomes less comfortable when the market changes.

A business approaching maturity during a period of tighter credit conditions, weaker trading or reduced lender appetite may find itself negotiating from a position of urgency. The financing requirement has not changed, but the range of available options may have.

Recent ECB data reinforces the importance of this environment. Euro-area banks reported a moderate tightening of credit standards for businesses in Q2 2026, driven by higher perceived risks and lower risk tolerance, and expected further tightening in Q3.

For businesses with upcoming maturities, early preparation can create something more valuable than administrative convenience: choice.

Starting a refinancing process well ahead of maturity gives management time to understand alternative lenders, review the existing structure, address potential weaknesses and consider whether additional liquidity or a different facility could better support the next stage of the business.

The objective is not simply to refinance before the deadline.

It is to avoid allowing the deadline to dictate the terms.

Our latest article examines the risk created when rigid maturity structures collide with an unfavourable credit cycle.

Forced Refinancing and Macro Cycle Risk: The Danger of the Maturity Cliff

AI Is Becoming a Credit Question

AI is changing more than technology strategies. It is beginning to change the way lenders think about certain businesses.

The implications are particularly relevant for software and fintech.

The Bank for International Settlements found that outstanding loans from private credit funds to SaaS companies grew from almost US$8 billion in 2015 to more than US$500 billion by the end of 2025, equivalent to around 19% of total direct loans. Around one-third of private credit funds now have exposure to the SaaS sector.

That scale makes changes in software economics increasingly relevant to credit underwriting.

If technology can change product durability, alter customer behaviour or compress margins, lenders need to understand what protects future cash flows.

For a fintech seeking debt funding for AI investment, saying that the business is "investing in AI" is not enough. The more important questions are what the investment changes, how it strengthens the business and how those benefits translate into sustainable revenue and cash generation.

That could mean deeper customer integration, stronger retention, better underwriting, lower fraud, improved operating leverage or access to a new regulated market.

The credit case therefore needs to connect technology investment with commercial outcomes.

This is also where competitive moat becomes part of the funding conversation. A product feature can become easier to replicate as AI capabilities spread, while embedded workflows, customer relationships, proprietary data, distribution and regulatory infrastructure may become more important sources of defensibility.

Our latest article looks at the questions lenders are likely to ask when fintech businesses seek debt funding for AI investment.

Fintech Debt Funding: 3 Questions Lenders Will Ask About AI Investment

On-Demand Webinar: Fintech Moats in an AI World

If AI is making products easier to build, where does defensibility come from?

Our on-demand webinar explores which competitive advantages are becoming table stakes, which are becoming more valuable and what this means for fintech businesses thinking about growth, capital and long-term value creation.

Watch Fintech Moats in an AI World

Before You Make the Move, Know What's Financeable

Funding is often considered too late in the strategic process.

A business identifies an acquisition, expansion opportunity or investment programme and only then asks how much capital it can raise to execute the plan.

Understanding funding capacity earlier can change that equation. It can also change which opportunities a business chooses to pursue.

Before pursuing an acquisition, entering a new market or committing to a major investment programme, management teams can assess what the business can realistically support through a combination of cash flow, leverage, available assets and future funding requirements.

This does not mean allowing financing constraints to determine strategy. It means understanding the financial parameters within which strategy can be executed.

That clarity can be valuable when opportunities move quickly.

A company that understands its funding capacity before entering an acquisition process can assess targets more efficiently. A business that has considered its refinancing options ahead of maturity has greater scope to choose its timing. And a management team that understands how much liquidity it can deploy can make investment decisions with a clearer view of the balance sheet implications.

Funding capacity is therefore becoming part of strategic planning rather than a separate exercise undertaken once a transaction is already underway.

Our latest article explores why businesses should understand what is financeable before making the deal.

Funding Capacity: Before You Make the Deal, Know What's Financeable

When the Balance Sheet Becomes Part of the Funding Strategy

Cash flow remains central to any debt discussion, but it is not the only source of financing capacity.

For businesses with meaningful asset bases, property, equipment, inventory and receivables can form part of a broader funding strategy. This can be particularly relevant when a business wants to preserve ownership, manage leverage or unlock liquidity without relying solely on unsecured borrowing or equity.

The broader point is that funding capacity should be considered across the balance sheet rather than reduced to a single measure of profitability. Understanding how cash flows, assets and financing structures work together can create additional options when conventional lending is not the right fit.

Market Watch

Several developments are worth watching as the private credit market moves through the second half of 2026.

Capital remains available, but deployment is becoming more measured.
The latest market results continue to show a divergence between fundraising and lending activity. Recent reporting has also highlighted pressure around loan valuations and weaker second-quarter performance at some private-credit managers, reinforcing the importance of disciplined underwriting and portfolio management.

Bank lending conditions remain disciplined.
The ECB's Q2 2026 Bank Lending Survey found a moderate tightening of credit standards for firms, with higher perceived risks and lower risk tolerance among the main drivers. Banks expect credit standards to tighten further in Q3.

For businesses, this reinforces the value of assessing alternative sources of capital before funding becomes time-sensitive.

AI and software exposure are becoming credit considerations.

BIS research shows how significantly private-credit exposure to SaaS businesses has grown, making the potential impact of AI on software economics increasingly relevant to lenders. As technology changes revenue durability, margins and competitive positioning, these factors are becoming part of the wider credit conversation.

Regulators are looking more closely at private credit.

The Bank of England's July 2026 Financial Stability Report highlighted the growing importance of private markets to corporate financing, while noting continued vulnerabilities around leverage, complexity, opacity and valuation uncertainty. Its ongoing Private Markets System-Wide Exploratory Scenario is also examining how stress could move through private markets and affect the provision of finance to UK businesses.

For businesses, greater scrutiny of the market is another sign of how significant private credit has become as a source of corporate finance.

Taken together, these developments point towards a market that remains open, but not indiscriminate.

For businesses, the message is straightforward: the quality of the funding case, the structure of the facility and the timing of the conversation all matter.

Implications for Businesses

The current lending environment does not mean businesses should become less ambitious.

It means they need to become more deliberate about how ambition is financed.

Before approaching the market, management teams should be asking:

How would a lender assess our business today?

What level of funding can we realistically support?

Does the proposed financing structure give us enough flexibility for what comes next?

How much negotiating leverage would we have if we needed to refinance tomorrow?

Can we clearly demonstrate how the capital will strengthen the business and support repayment?

These questions move the funding conversation away from simply securing capital and towards building a financing strategy that can support the business through its next stage of growth.

That is particularly important in a market where lenders have more choice.

Businesses that can present clear information, credible assumptions and a well-considered capital strategy are better placed to engage the right lenders, evaluate competing structures and make decisions without unnecessary time pressure.

Financeability is therefore not something to address only when a transaction is underway.

It is something businesses can build.

Continue the Conversation

The strongest funding outcomes often begin well before a funding process formally starts. If the themes in this month's edition are relevant to your business, these resources can help you assess your readiness, understand your options and plan your next move.

Debt Readiness Checklist

Lenders are placing greater emphasis on financial visibility, resilience, reporting quality and sustainable cash generation. Our Debt Readiness Checklist helps businesses assess the areas that can influence lender confidence before entering funding discussions.

→ Check Your Debt Readiness

Use of Funds

Different strategic objectives require different financing approaches. Explore the funding solutions available for growth, acquisitions, refinancing, working capital and other business requirements.

→ Explore Our Use of Funds

Private Debt vs Venture Debt vs Bank Debt

Different forms of debt serve different purposes. Our comparison guide helps businesses understand the characteristics of private debt, venture debt and traditional bank lending and consider which route may best fit their objectives.

→ Compare Your Funding Options

Market Pulse Webinars & Events

Stay close to the conversations shaping private credit, strategic financing and global capital markets across the UK, Europe and APAC.

→ Explore Our Events

Looking Ahead

Private credit is entering a more consequential phase.

Institutional demand remains strong and the range of financing solutions available to businesses continues to expand. At the same time, lenders are becoming more disciplined about risk, structure and deployment.

That combination is unlikely to make funding less important. It makes the quality of preparation more important.

Businesses that understand how they will be assessed, know their funding capacity, choose structures that preserve strategic flexibility and start conversations before capital becomes urgent will be better positioned to act when opportunities arise.

The advantage is not simply having access to capital.

It is being ready for the right capital at the right time.