Growth-stage financing is an invaluable resource for emerging companies. It gives teams the capital they need to start building financial resilience and preparing to scale. But growth-stage financing might see some changes as we move into 2025—and it’s important for growing companies seeking funding to be aware of potential shifts.
For the right organizations, traditional financing methods can meet capital needs. But in recent years, they have been reshaped by a fluctuating economy and shifting investor tendencies.
With companies looking for new ways to fill gaps in capital availability, other financing solutions like private lending are increasingly popular. Around 50% of the 1.7 trillion dollars of capital held or loaned by private lenders is currently invested in direct lending—and that figure is likely to grow.
To help growth-stage companies stay on top of the latest financing trends, we’ll walk through six predictions about what to expect when raising debt in 2025.
1. More Debt for Growth-Stage Financing
Among growth-stage companies seeking additional capital, there’s been a marked rise in the numbers turning to debt financing. This is largely in response to a period of inflated valuations that led to a more conservative equity market. With venture capital still recovering, debt offers businesses a faster way to secure business financing along with the flexibility to continue growing without diluting ownership.
This trend appears set to continue in 2025. More companies will likely opt for debt deals structured to provide runway while they focus on scaling and profitability. In turn, lenders will see a rising demand for flexible, creative financing solutions tailored to business needs. This push for more personalized growth-stage financing will allow companies to overcome challenges in the current economic landscape while preserving long-term financial stability.
2. Continued Strength in Private Credit
Private credit markets have stepped in to satisfy the needs left unmet when banks and venture capital pulled back. Growth-stage companies, which have strong demand for funds, would have been left high and dry as banks continued tightening lending criteria.
Priorities among private lenders have changed, too. Lenders seeing the most activity now focus mostly on growth potential, margins, cash flow management, and internal metrics. They’re also offering more tailored deal structures, which can help companies protect their lending partnerships in the long run.
In 2025, private credit appears likely to remain a highly relevant option. For companies looking to refinance existing debt and fuel growth, lenders providing both efficiency and flexibility will continue to capture more of the market in the coming year.
3. Greater Focus on Cash Management and Profitability
Top-line growth is no longer top priority. Instead, 2024 rang in a new focus on profitability and cash management, and it seems set to stay for 2025. Lenders now look for more sustainable growth as opposed to rapid expansion.
Companies with manageable burn rates and a well-established plan for achieving profitability stand the best chances of getting approved for growth-stage financing. Vague financial strategies and uncontrollable burn, on the other hand, might struggle to attract lenders. Amid a broader shift toward sustainable growth and long-term profitability, growth-stage companies will have to adapt their business structures, operations, and financing plans to keep up in 2025.
4. Growing Relevance of Management Teams
In 2025, lenders will want to see clear evidence of strength and resilience among management teams. Recent economic ups and downs have made it clear that leadership can guide a company through challenges—or they can struggle to find a path forward.
More careful evaluation of management teams is quickly becoming commonplace, with lenders scrutinizing track records, decision-making processes, and overall adaptability. For growth-stage financing, remaining aware of this new norm and presenting leadership as favorably as possible will offer a distinct advantage in securing capital.
5. More Refinancing Deals
It’s an increasingly common scenario: growth-stage companies have maturing loans with a bank or another lender, and they need to refinance. But when lending criteria grow more stringent or negotiations begin to break down, renewing can become surprisingly difficult. In that case, bringing in a private lender, who can offer more flexible terms, is often the best refinancing option.
As a result, refinancing will contribute to more growth-stage financing deals in 2025, particularly for companies aiming to replace existing debt or extend their financing. In an environment impacted by dropping but still high interest rates, refinancing will prove to be a major strategy for managing liquidity.
6. Increased Flexibility in Covenant Terms
Whether they’re struggling themselves or seeing other companies contend with financial challenges, most growth-stage companies are acutely aware of the unpredictable economic climate. The effects? More companies are reevaluating their strict loan covenants.
In 2025, companies will continue to push for more workable covenant terms that will allow them to manage financial challenges without risking default. For lenders, this will involve offering carefully curated structures that balance protection against risk with the operational flexibility companies need in the event of unexpected market slumps.
Growth-stage financing is more of a true partnership than ever, with companies looking for lenders who understand the complexities and challenges of growing a business through uncertain times and are willing to propose terms designed to support long-term success.
Final Thoughts
The end of 2024 is getting closer, and many companies and lenders currently hold a cautious optimism concerning 2025. Growth-stage companies still face high interest rates and tight liquidity, but for those able to showcase strong financial strategies, plenty of financing options remain available. Private credit will continue to be an important source of capital, especially for refinancing or flexible, innovative solutions.
Finding the right financial partners is key to success in 2025. Whether you need an equity raise, product launch, or exit, look for lenders who understand your unique needs and want to help you reach your next major milestone.
Want to learn more about growth-stage financing markets? Get in touch with 5th Line to discover our best tips and customized solutions for growing companies.