Banking Disintermediation: Why Are Companies Increasingly Turning to Private Investors for Financing?

13% per year: that is the average rate at which the assets of private credit funds domiciled in the eurozone grew between 2010 and the second quarter of 2024, according to the European Central Bank’s May 2025 Financial Stability Review. As of that date, they totaled approximately 106 billion euros, compared with 628 billion euros for private equity funds domiciled in the euro area.

This trend illustrates the rise of banking disintermediation. Companies no longer rely exclusively on bank credit to finance their growth, acquisitions, or business transfers. They can also turn to private debt funds, private equity funds, institutional investors, or specialized platforms.

This trend does not mean that banks are destined to disappear. Rather, it reflects a diversification of funding sources. Banks, funds, and private investors often work together on the same transaction, playing complementary roles.

What is banking disintermediation?

Banking disintermediation refers to the growth of financing obtained without banks playing their traditional role as intermediaries between savers and businesses.

In the traditional banking model, a bank collects deposits or raises funds in the markets, and then extends credit to a business. It selects the borrower, records the loan on its balance sheet, and assumes the risk of default.

In a direct financing arrangement, a company raises capital directly or indirectly from investors. It may issue bonds, accept an investment from a fund, or take on debt from a private credit fund.

The term “disintermediation,” however, must be used with precision. An asset management company, a platform, or a fund remains a financial intermediary. The transformation primarily involves the partial replacement of banking intermediation with market-based intermediation or specialized funds.

How does disintermediated financing work?

The process begins with identifying the company’s needs. These may include an acquisition, international expansion, an industrial investment, a business transfer, or refinancing.

The company or its advisory team then presents the project to potential investors. The investors conduct a due diligenceto analyze the business model, financial results, risks, and repayment capacity.

The terms are negotiated directly with investors. In the case of private debt, these terms include, in particular, the interest rate, maturity, collateral, and covenants. In the case of private equity, negotiations focus on valuation, the percentage of equity sold, governance, and exit terms.

The relationship is generally more focused than in a public bond offering. A limited number of investors provide the capital and support the company over several years.

Why is banking disintermediation on the rise?

The growth in nonbank financing stems from several converging trends. It cannot be explained solely by a withdrawal of banks.

Regulations Are Transforming the Banking Industry

Since the 2008 financial crisis, prudential requirements for banks have been tightened. They must set aside more capital to cover the risks they bear and monitor their liquidity more closely.

These rules contribute to the stability of the banking system, but they can also make certain types of financing more expensive. Complex transactions, highly indebted companies, or assets that are difficult to value generally require more regulatory capital.

Banks therefore focus their resources on financing that is compatible with their balance sheet constraints. Private capital can be used for transactions whose risk, duration, or structure are less well suited to the traditional banking model.

This trend does not necessarily mean that banks are lending less to the economy as a whole. In France, according to the Banque de France, the outstanding balance of bank loans to non-financial corporations still stood at 1,408 billion euros in December 2025, up 2.6% year-over-year.

Business needs are becoming more complex

A growing business does not always need a standard loan. It may need to finance an acquisition quickly, adjust its repayment schedule, or obtain capital without providing the collateral typically required by a bank.

Private debt funds can negotiate customized terms. They can tailor the maturity, interest payment frequency, and repayment terms to the company’s profile.

Private equity addresses a different type of need. It strengthens a company’s equity without creating an obligation to repay the investment by a fixed maturity date. This solution may be suitable for a company that wants to accelerate its growth, make significant investments, or plan for succession.

Banking disintermediation therefore broadens financing options. It does not necessarily make capital less expensive, but it can offer a structure that is better suited to the project.

Investors are looking for new sources of returns

Institutional investors have capital that they must invest over time horizons that can sometimes be very long. Pension funds, insurers, sovereign wealth funds, and family offices can thus provide financing to companies in exchange for a return commensurate with the risk and illiquidity involved.

Private markets also provide access to companies that are not listed on stock exchanges. This exposure can help achieve diversification goals, provided investors are willing to accept reduced liquidity and the risk of capital loss.

The growth of private debt has strengthened this link between long-term savings and companies’ financing needs. According to France Invest, in 2025, private debt funds operating in France raised 14.8 billion euros, a 74% increase from 2024.

Private markets have become more professional

The growth of non-bank financing relies on specialized teams capable of analyzing industries, structuring transactions, and monitoring the companies they finance.

Funds now have expertise comparable to that used in banking or bond transactions. They rely on analysts, lawyers, auditors, and operational experts.

The growing size of these platforms also enables them to finance transactions that were once the exclusive domain of syndicated banks or the bond markets. Private lending, therefore, is no longer limited to small businesses that are excluded from bank financing.

What forms does non-bank financing take?

Private Debt

Private debt refers to loans made directly by funds to companies. It can be used to finance growth, an acquisition, refinancing, or a succession transaction.

The terms are negotiated with the borrower. The fund may require collateral and covenants in order to monitor changes in risk throughout the term of the loan.

In France, private debt funds invested 15.9 billion euros in 2025 through 379 transactions. At that time, France was the second-largest European market, behind the United Kingdom, according to the report *Private Debt Fund Activity in France in 2025* by France Invest and Deloitte.

Private Equity

Private equity funds finance a company by providing equity capital. The fund becomes a shareholder and generally plays a role in corporate governance.

Unlike debt, this capital does not involve a contractual repayment obligation. The return depends on the value created and, subsequently, on the price obtained upon the sale of the equity interest.

Private equity can play a role at various stages of a company’s life cycle. Venture capital funds finance early-stage companies, growth capital supports their scaling up, and succession capital facilitates the acquisition of mature companies.

Private Bond Placements

A private placement allows a company to issue debt securities to a limited number of investors. In Europe, the Euro PP was developed specifically to facilitate access for mid-sized companies to institutional investors.

This solution falls somewhere between a bank loan and a public bond offering. It provides direct access to capital markets without necessarily imposing the same requirements as a widely distributed offering.

The company must, however, be able to produce reliable financial information and engage with professional investors throughout the entire financing period.

Crowdfunding

Crowdfunding connects companies directly with a community of investors through a platform. It can take the form of a loan, a bond offering, or an equity investment.

The amounts involved are generally smaller than in institutional private debt or private equity transactions. This solution is particularly suited to startups, small and medium-sized enterprises (SMEs), and certain real estate or energy projects.

Crowdfunding does not eliminate intermediation. The platform selects projects, organizes the fundraising, and provides part of the regulatory and operational infrastructure.

What are the benefits for businesses?

The first advantage is diversification. A company financed by multiple sources is less dependent on the decisions of a single institution and can better spread out its debt repayment schedule.

Flexibility is a second benefit. Private investors can tailor financing to account for seasonal fluctuations in cash flow, an acquisition plan, or an investment phase during which cash generation will be temporarily limited.

Speed of execution can also be a deciding factor. A fund with available capital and a specialized team can analyze and then finance a complex transaction within a timeframe compatible with an acquisition.

Finally, some investors contribute more than just capital. A private equity fund can assist with governance, recruitment, international expansion, or external growth. A private lender can draw on its expertise to restructure financing before difficulties become irreversible.

These advantages come with a trade-off. Flexibility and the ability to finance more complex structures may come with higher costs or demanding contractual terms.

What are the risks and limitations?

Banking disintermediation shifts part of the risk from bank balance sheets to funds and their investors. It therefore does not eliminate credit risk.

For the company, the cost of financing may be higher than that of a traditional bank loan. Investors demand a return that reflects the illiquidity, complexity, and risk of the transaction.

The documentation may also limit the executive’s discretion. Strict covenants may govern debt, acquisitions, dividends, or asset disposals.

For investors, the risks include default, loss of principal, and illiquidity. The lack of an active secondary market can make it difficult to sell a debt instrument or equity interest before maturity.

Valuation raises another challenge. Private assets do not have a continuously observable price. Their apparent stability therefore does not mean that their economic value does not fluctuate.

The ECB also notes that, for the median firm in the study, the inflow of private financing is accompanied by an increase in debt and a decrease in the ability to cover interest payments. These findings do not condemn private financing, but underscore the importance of selecting and monitoring firms.

Are banks really being bypassed?

Banking disintermediation is often more of a complementary process than a complete replacement. Banks continue to finance companies backed by private markets.

In a LBO, a private equity fund can provide equity capital, a debt fund can provide unitranche financing, and a bank can offer working capital lines, hedging instruments, or payment services.

Banks also indirectly finance private markets. They may extend lines of credit to funds, participate in debt syndications, or lend to the same companies.

The ECB thus notes that the entry of a private equity fund tends to immediately reduce the bank credit of the company in question. Conversely, companies financed by private equity may see their bank debt increase, particularly when the investment takes the form of a “ LBO.”

Disintermediation should therefore be understood as a restructuring of the financing chain. Risk flows among banks, funds, insurers, institutional investors, and companies rather than remaining concentrated on a single bank’s balance sheet.

What role should private investors play?

Private investors convert long-term savings into capital for businesses. This role is particularly important for companies that remain unlisted for much of their development.

The ECB notes that, in its sample, firms financed by private markets exhibit higher productivity levels than those financed exclusively by banks. The institution points out, however, that part of this difference may result from the initial selection of firms by fund managers.

Private capital can support innovation, intangible assets, and long-term investments. Private funds can take on risks that banks or public bond markets are less willing to bear.

This ability comes with a special responsibility. Investors must understand companies’ creditworthiness, debt levels, ESG risks, and the consequences of an adverse economic scenario.

The quality of disintermediation therefore depends on the investment discipline. Excessive pressure to deploy capital can lead to accepting prices that are too high, insufficient margins, or weakened contractual protections.

How do you analyze disintermediated financing?

The analysis must first focus on the company’s actual needs. Financing intended to support a productive investment does not have the same profile as debt incurred to pay a dividend or refinance a structure that has become too fragile.

Next, it is important to understand the role of financing within the capital structure. Senior secured debt has a higher priority than subordinated debt, while an equity investment absorbs the first losses.

Repayment capacity must be tested under various scenarios. The analysis cannot rely solely on the budget prepared by management. It must take into account slower growth, shrinking margins, or increased cash flow requirements.

Governance and documentation also play a central role. Information rights , covenants, security interests, and intervention mechanisms must be tailored to the actual risk being assumed.

Finally, the quality of the Fund manager remains a key factor. Its experience, sector-specific expertise, track record of losses, and ability to restructure an equity interest or a debt instrument must be evaluated over several cycles.

Conclusion

Banking disintermediation reflects a lasting transformation in corporate financing. Private debt funds , private equity funds, and institutional investors provide capital that complements bank credit and public markets.

This development offers companies greater choice, flexibility, and the ability to finance complex projects. It also gives investors direct access to financing for the real economy.

However, disintermediation does not eliminate intermediaries or risks. It simply redistributes them among new players. Its soundness therefore depends on the quality of the analysis, transparency, documentation, and discipline of the portfolio managers.

Key Takeaways

• The assets of private credit funds domiciled in the eurozone have grown by about 13% annually since 2010, reaching 106 billion euros in the second quarter of 2024.
• In France, private debt funds invested 15.9 billion euros in 2025 through 379 transactions. These figures illustrate the growth of non-bank financing, without indicating a widespread decline in bank lending.
• Banking disintermediation takes several forms, including private debt, private equity, private bond investments, and crowdfunding.
• It provides companies with diversification and flexibility , but can lead to higher costs, more demanding governance, and debt risks.
• Finally, banks and private equity firms remain closely linked. Disintermediation reflects a diversification of financing channels rather than the disappearance of banks.

FAQ

What is banking disintermediation?

Banking disintermediation refers to the growth of financing obtained directly from markets or investors, without the bank alone carrying the financing on its balance sheet.

What are the main forms of disintermediated financing?

The main forms include private debt, private equity, bond issuances, private placements, and crowdfunding.

Why are companies turning to private debt?

Private debt can offer a more flexible structure, rapid execution, and financing tailored to acquisitions or companies whose needs do not align well with standard banking criteria.

Does banking disintermediation mean the end of banks?

No. Banks continue to finance businesses and often collaborate with private equity firms. They can provide working capital lines, hedges, or supplemental financing.

What are the risks of non-bank financing?

The main risks include default, excessive debt, illiquidity, opaque valuations, and the weakening of contractual protections when competition among investors becomes too intense.

What role does private equity play in disintermediation?

Private equity provides equity capital to unlisted companies. The fund becomes a shareholder and generally supports the company’s strategy, governance, and growth.

Is private debt replacing bank credit?

It can replace it in certain transactions, but it is often used as a supplement. A company may use private debt, bank loans, and equity simultaneously.