The Evolving Role of Debt

Equity remains, and will likely continue to be, the primary instrument for funding growth. For most companies, it's the right way to finance the bulk of what growth requires. Yet today, debt is taking on a more nuanced role for growth stage companies and occupying a more strategic role in the capital structure. For many companies in fast-growing sectors, debt is being drawn deliberately alongside equity, deliberately, to fund M&A, working capital and international business growth.

Complementary capital

Series B to pre-IPO is the point at which the productive uses of capital are clearest. The unit economics are proven, the target markets are identified, the hiring plan is written. It is also the point at which equity is most expensive to surrender.. Founders focused on raising the capital required to build often overlook the governance concessions: another round means another board seat, another preference stack. Founders have understood this for some time.

Structured success

Private credit's growth is structural, not cyclical. Assets under management have passed $2.2 trillion and are projected to reach $4.5 trillion by 2030, a trajectory tied to a durable shift in how growth capital gets sourced as banks retrench from lending they once did routinely. At the growth stage specifically, debt-backed companies accounted for 37% of exit value in 2025 against 18% of exit count, meaning the businesses that used debt along the way were disproportionately the larger, more successful outcomes. Debt is an inherent component of the growth story for these companies.

The headline choice between debt and equity matters less than how the debt is built. A facility that forces a full draw at close, with rigid amortisation and a covenant package designed for a profitable industrial borrower, solves the dilution problem and creates an operational one.

The alternative is capital shaped around how growth companies actually consume it. Covenants that align with businesses rather than unduly restrain them, because a company with 24 months of runway and 50% revenue growth should not be governed by financial ratios written for its success. Flexible drawdown, so the borrower pulls capital against real-time cash requirements, funding a new market entry in one quarter and a hiring wave in another, without paying interest on money sitting idle in between. Tenor and repayment mechanics matched to the path to profitability or the next raise.

This is how we lend at Liquidity. Our facilities run from $10 million to $200 million, senior secured, structured as term loans, revolving lines, or MRR-linked facilities depending on the business model. Our AI underwriting platform, trained on more than 416,000 private company data points, evaluates the indicators that actually predict revenue growth, net revenue retention, investor quality runway and other factors. It reaches a term sheet in 72 hours and a close in 30 days on average, against the average time taken by private credit providers with legacy underwriting systems.

Funding the future

Today, private credit requires speed. As M&A activity picks up, particularly in the AI sector, corporate credit acts as a growth engine for enabling companies to supercharge deal-making, due to the flexible nature of facilities. Add-on acquisitions reached 75.9% of US buyout activity by deal count in the second quarter of 2025, and close to half of global add-on deals are now at least the fourth acquisition by the same platform, up from 30% in 2019.

The second shift is less visible in the aggregate numbers but just as real in conversations with founders. As the timeline between equity rounds has stretched, and as sales cycles for many growth-stage businesses have lengthened, more companies are using debt to manage the ordinary friction of running the business: covering payroll, inventory, or customer collections while revenue converts to cash at its own pace.

Debt does not preclude the next equity round; it improves it - a company that borrows $40 million to fund eighteen months of execution goes back to the equity market with a stronger business and a higher price. Strategic debt raises can position a company for success by delivering capital today and better economics tomorrow.

Debt, instrumental

The pattern across growth capital, M&A, and working capital is the same: debt is being matched to a specific, definable need rather than deployed as a wholesale alternative to equity, a sign of a maturing market. As spreads in growth debt continue to compress and lenders deploy AI underwriting infrastructure enabling them to move speed, the range of problems debt can credibly solve for a growth-stage company will continue to expand.