With much of what once was Silicon Valley Bank falling into the hands of Raleigh, North Carolina-based First Citizens BancShares, it is fair to wonder what the future of lending and credit may look like for venture-backed startups.

SVB’s outsized role in venture debt and lending will be taken over not just by a few smaller banks, but also likely will raise interest in many private credit funds — or shadow banks — and others that have eyed the industry for a while, say those in the venture world.

With those players having an expanded role in the market, startups also can expect the cost of capital — which just more than a year ago wasn’t even a concern — to increase noticeably, they added.

“That gap will be filled, but expect money to be more expensive,” said Jerry Serowik, managing director and head of capital markets at investment bank Cohen & Company Capital Markets.

The shifting banking scene

SVB’s fall didn’t just affect startups’ ability to secure debt or a credit facility from the bank itself, it also helped create great uncertainty in the banking system in general.

Banks such as Deutsche Bank, Credit Suisse and smaller regional bank First Republic Bank all have been shaken by the sense of unease that has drifted into the banking sector.

That sense of instability will hurt banks’ ability to fill the lending shoes of SVB — which was the dominant bank for tech startups and venture debt in the U.S. — according to those in the venture world.

Large banks cannot fill most of the loss due to regulations that dissuade them from lending to companies that are not within a year of profitability.

On the other hand, the recent woes of smaller banks such as First Republic likely will tighten regulations and put more scrutiny on who they lend money to, Serowik said.

Ran Ben-Tzur, a partner at tech-focused law firm Fenwick & West, said while there are a number of other banks — such as Bridge Bank — that provide venture debt, it remains to be seen who may take SVB’s market share, especially in the current environment.

“A number of regional banks, and in certain cases some of the larger banks, are under some sort of distress,” he said.

That doesn’t mean some banks will not possibly look at stepping into the vacuum SVB’s collapse created. Just last week, St. Louis-based Stifel Financial hired three former SVB employees in what the firm called a “significant expansion of venture banking business.” Others that may look to move into the space could be newer fintechs such as Brex and Mercury, which have expressed an interest in lending to startups.

What’s in the shadows?

Most people are in agreement that as banks look for solid footing, private credit funds — also called shadow banks, or credit intermediaries which do not fall in the category of traditional regulated banking — could step into the opening created by SVB.

Such firms — which include players of all sizes like BlackRock, Ares Management and Atalaya Capital — have been around for decades and have shown increasing interest in venture.

“Private credit will get bigger, even if it is costlier,” said Don Butler, managing director at Thomvest Ventures and someone who has been in venture for more than two decades.

Private credit often is pricier since those funds’ LPs expect higher rates.

Butler said he already has met with a few credit providers and two things are certain — the cost of capital will go up and the facility sizes will get smaller, as these lenders look to spread their risk around more. “This will go on for at least a few quarters,” he said.

Effects on startups

Of course, the cost of credit increasing couldn’t happen at a worse time for startups. With equity financings getting harder and harder to come by for many startups, the lending and debt space has become more critical.

Companies are staying away from equity raises as valuations are still settling, and the uncertainty of the SVB situation will not benefit the current fundraising environment, Ben-Tzur said. “I don’t think it’ll help,” he added. Butler said the full effect of SVB’s collapse is just starting to be felt by startups and those looking to raise capital. “This isn’t just a blip,” he said. He added that he expects a higher-than-normal mortality rate among seed and pre-seed startups.

Many of these companies already faced a crucible moment when SVB failed weeks ago and their access to cash was in doubt. Investors at that point had to make a call on whether to support these young companies in their moment of need, and many decided they no longer would in this market, said Butler. That decision is unlikely to change in the next several quarters, he added.

Now, the one bank that was sometimes willing to take a chance on young, unproven companies is under different ownership. There is a chance the tighter credit market could jumpstart equity financing, or at least make them more appealing to startups, Serowik said. Only time will tell that, but one thing is certain now that SVB is gone.

“Access to capital will deteriorate,” said Serowik. “And the cost of capital will increase.”