Key Takeaways
- • Banks are structurally shifting away from smaller equipment finance and asset-based lending deals due to regulatory capital requirements (Basel III/IV) and unfavorable risk-adjusted economics, where a $1 million loan requires similar underwriting to a $20 million deal without proportional returns.
- • Private credit has grown to approximately $2 trillion globally and now finances over 80% of middle-market sponsored deals, fundamentally displacing traditional bank lending in this segment according to McKinsey research from December 2025.
- • Bank-private credit partnerships are becoming permanent market fixtures rather than cyclical accommodations, as institutions use co-investment and lending arrangements to preserve client relationships while reducing balance-sheet pressure, per Corinne Seton, SVP and head of capital markets at Mitsubishi HC Capital Canada.
- • Federal Reserve data from the April 2026 Senior Loan Officer Opinion Survey shows 16 of 54 banks reported stronger demand from private equity funds, signaling structural reallocation of lending capital toward alternative credit sources.
- • Equipment finance and asset-based collateralized lending are emerging as preferred deployment targets for private credit capital, offering granular, secured cash flow characteristics that align with the sector's growth trajectory.
Summary
Banks are entering into sustained partnerships with independent lenders and private credit firms to navigate fundamental shifts in equipment finance and asset-based lending markets. The trend, once viewed as a cyclical response to market conditions, has become structural, according to Mitsubishi HC Capital Canada's leadership. This represents a strategic pivot across the entire financial sector as regulatory constraints and capital efficiency pressures force traditional lenders to reconsider their competitive positioning.
Regulatory frameworks implemented after the 2008 Financial Crisis have substantially altered the economics of smaller-ticket lending. Basel III and IV capital and liquidity requirements have made loans under $20 million increasingly unattractive on a risk-adjusted basis. As one market participant noted, a $1 million equipment finance loan demands essentially the same underwriting, monitoring, and compliance infrastructure as a $20 million facility—without generating equivalent returns. This structural disadvantage has pushed banks toward larger deals and away from the granular equipment finance market that historically drove loan portfolio diversification.
Private credit has expanded dramatically to capture this displaced demand. The asset class has grown to roughly $2 trillion globally and now finances more than 80% of middle-market sponsored transactions, according to McKinsey research published in December 2025. This expansion extends beyond traditional leveraged buyouts into asset-based finance, real estate, and infrastructure lending—segments banks previously dominated. The Federal Reserve's April 2026 Senior Loan Officer Opinion Survey reinforces this shift: 16 of 54 surveyed banks reported increased demand from private equity funds, indicating sustained capital reallocation.
Bank-private credit partnerships address multiple objectives simultaneously. They allow traditional lenders to maintain client relationships while reducing balance-sheet strain, while enabling private credit managers to scale operations and diversify across collateralized asset classes. Equipment finance—with its granular nature, identifiable collateral, and contractual cash flows—has emerged as a preferred deployment vehicle for private credit allocators. Higher interest rates, intensified deposit competition, and economic uncertainty have further compressed bank profitability in traditional lending, accelerating the shift toward partnership-based models and collaborative capital structures across the commercial finance ecosystem.
Regulatory frameworks implemented after the 2008 Financial Crisis have substantially altered the economics of smaller-ticket lending. Basel III and IV capital and liquidity requirements have made loans under $20 million increasingly unattractive on a risk-adjusted basis. As one market participant noted, a $1 million equipment finance loan demands essentially the same underwriting, monitoring, and compliance infrastructure as a $20 million facility—without generating equivalent returns. This structural disadvantage has pushed banks toward larger deals and away from the granular equipment finance market that historically drove loan portfolio diversification.
Private credit has expanded dramatically to capture this displaced demand. The asset class has grown to roughly $2 trillion globally and now finances more than 80% of middle-market sponsored transactions, according to McKinsey research published in December 2025. This expansion extends beyond traditional leveraged buyouts into asset-based finance, real estate, and infrastructure lending—segments banks previously dominated. The Federal Reserve's April 2026 Senior Loan Officer Opinion Survey reinforces this shift: 16 of 54 surveyed banks reported increased demand from private equity funds, indicating sustained capital reallocation.
Bank-private credit partnerships address multiple objectives simultaneously. They allow traditional lenders to maintain client relationships while reducing balance-sheet strain, while enabling private credit managers to scale operations and diversify across collateralized asset classes. Equipment finance—with its granular nature, identifiable collateral, and contractual cash flows—has emerged as a preferred deployment vehicle for private credit allocators. Higher interest rates, intensified deposit competition, and economic uncertainty have further compressed bank profitability in traditional lending, accelerating the shift toward partnership-based models and collaborative capital structures across the commercial finance ecosystem.
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