This paper analyzes the dynamics of capital structure decisions across GCC-listed non-financial firms using a non-linear framework from 2012 to 2020. This research uses a dynamic non-linear model, and the two-step system generalized method of moments technique (SYS-GMM) to analyze the financing decisions of financially constrained firms in comparison to those of non-financially constrained firms. Our findings indicate that firms experiencing financial constraints embrace a different approach to capital structure compared to unconstrained firms. Financial constraints significantly affect the dynamics of capital structure, particularly in relation to profitability and growth opportunities. Specifically, less financially constrained firms—specifically those with low growth opportunities—experience lower financing costs compared to firms with contrasting characteristics. In contrast, regarding profitability as a moderator variable, it is observed that low profitable firms, characterized by significant financial constraints, incur lower financing costs than their more profitable counterparts.