Acquisition Financing in 2025: What’s Changing and Why It Matters

The private debt industry has matured and expanded over the past 10 years, making it a huge force to be reckoned in 2025 in the acquisition financing market. It has become the go-to source for founder-owned companies and independent sponsors due to its attractiveness over banks. While many still go to banks to fund their deals, there are several underlying reasons why private credit fund platforms are intrinsically superior to banks in providing acquisition financing.

How Regulatory Pressure Is Forcing Banks Out of the Acquisition Financing Game

Bank regulations have continued to tighten over the years making bankers increasingly worried about what regulators think. This concern affects every person involved in new loan production at a bank including originators as well as underwriters and credit people. With Banks more focused on what regulators think, they are less focused on meeting the needs of the acquisition financing market and ultimately have lost market share. Many bankers routinely use regulators as the bogeyman for justifying why they cannot do a certain structure. This large-scale outsourcing of risk policy to regulatory bodies has a chilling effect on a bank’s basic ability to think and ascertain risk. Banks have also reorganized internally and created new levels of review to align with new regulations.

A loan must pass through at least two if not three departments of credit review and compliance. This makes the approval harder and creates more reasons to reject a deal. Also, credit decision authority is increasingly divested from the field level new business people. These people used to have the ability to approve loans themselves but nowadays are relegated to sending deals to credit deciders in other offices. So, most banks can do less not more and are increasingly looking over their shoulders. Private credit funds, on the other hand, have little regulatory scrutiny and are run by people with real business smarts who understand risk and reward. They tend to be highly intelligent and compete on the basis of service and execution.

New business origination people are highly empowered and can take a deal from start to approval. Given the banking industry’s penchant for subpar customer service and struggle to deliver loan approvals, they have lost credibility in the eyes of many companies in need of acquisition financing. Private debt funds can offer larger loan amounts than banks and can even offer scalable loan structures to meet future acquisition funding needs. Even though the pricing is higher than a bank, the combination of process efficiency, certainty of execution and structural superiority makes this approach immensely more valuable and unbeatable in today’s acquisition financing market.