The world of corporate financing has undergone a significant transformation in recent years. While traditional bank lending remains a dominant external source of funding for businesses, alternative, capital market-based financing channels are playing an increasingly important role. This trend is further reinforced by the introduction of a new market participant from April 2026: the loan originating investment fund, which provides access to funding for companies that would not be able to obtain financing in the traditional banking market.
What is the current situation?
For years, a recurring question has been whether venture capital and private equity funds, beyond granting shareholder loans, may engage in regular lending activity, and if so, under what conditions. Under the currently applicable provisions of the Hungarian Investment Fund and Fund Manager Act (AIF Act) venture capital and private equity funds may, in principle, grant loans to “any party,” as the legislation does not impose explicit restrictions. However, in a position statement issued in 2024, the Hungarian National Bank emphasized that the lending-related provisions of the AIF Act must not be interpreted expansively. Venture capital and private equity funds are primarily established for business development and equity investment purposes, rather than for conducting financing activities. Accordingly, from a supervisory perspective, such funds may typically grant loans to companies in which they already hold an equity stake, or where the loan is expected to be converted into equity within a foreseeable timeframe.
Loan originating funds as a new type of investment fund
As of 16 April 2026, the amendment of the AIF Act provides clarity and institutionalizes the lending activity of investment funds. As a result, a new type of investment fund - the so-called loan originating investment fund - will be introduced, alongside lending as an additional activity that may be carried out by fund managers. From this date, alternative investment funds will qualify as loan originating funds if their investment strategy primarily involves the provision of loans, or if at least 50% of their net asset value consists of loans.
The legislator also clarifies that the concept of lending includes not only direct lending by the fund but also indirect financing (e.g., through a company owned by the fund). Accordingly, the new rules allow funds to participate in financing transactions in a flexible manner, including through indirect structures.
How does it differ from a credit institution?
The operating framework of loan originating investment funds differs in several respects from that of credit institutions and financial enterprises. While the latter extend loans from their own balance sheets, subject to strict prudential requirements and bearing the associated risks themselves, fund managers deploy capital raised from investors, with risks borne directly by those investors. Moreover, capital requirements applicable to funds and fund managers are significantly lower than those imposed on credit institutions. Another important distinction is that credit institutions and financial enterprises may not engage in investment management activities, and, as lenders, they do not acquire ownership stakes in borrowers. By contrast, in the case of investment funds, financing is often combined with equity participation. At the same time, the new regulation introduces stricter risk management and leverage requirements for loan originating funds and excludes consumer lending, meaning that these funds are expected to operate primarily in the corporate financing market as potential competitors to banks.
Shareholder loans also become regulated
The amendment to the AIF Act also clarifies how investment funds may provide financing to their portfolio companies based on their ownership position. Compared to loan originating funds, lighter administrative and leverage rules will apply, while the concept of a “shareholder loan” is formally introduced. This category includes any loan granted by a fund to a company in which it holds, directly or indirectly, at least a 5% ownership interest. Shareholder loans are closely linked to the ownership relationship, i.e. they may not be transferred independently of the underlying equity stake.
Who benefits from the emergence of loan originating funds?
The emergence of loan originating investment funds not only creates new business and portfolio-building opportunities for fund managers but also broadens the range of financing options available to companies. These funds offer solutions in situations where greater flexibility, faster decision-making, or higher risk tolerance is required. Financing provided by loan originating funds may be particularly attractive to companies in the early or dynamic growth stages of their development, which do not yet meet the criteria for bank financing but have already moved beyond reliance solely on shareholder funding.
In addition, investment funds will be able to offer more tailored financing structures (such as convertible loans or mezzanine financing) and may finance projects that banks would not undertake for prudential reasons. At the same time, it is important to recognize the trade-off: this type of financing is likely to involve higher pricing, as funds assume greater business and structural risks. These risks will likely be compensated through higher return expectations and the imposition of stricter covenants.