You get a larger loan amount

Under the structure of a cash flow based loan, the capital lent is based on a company’s EBITDA. While a bank loan will limit its loan to your level of hard assets, a cash flow based loan will not. In cases of an acquisition, companies can also use the EBITDA of their target to raise an even larger loan size.

This extra funding can prove to be the key in getting a deal done and putting your company over the top.

You gain flexibility to fund major projects

Banks are generally conservative, looking to give loans when you they are not needed. 100% funding for a major project, such as acquisition or expansion, is difficult to source from a bank.

Cash flow based lenders are more willing to undertake these project endeavors with you—they, too, will have a vested interest in your company’s success. More on that later.

Your loan facility can be scaled up

Cash Flow lenders are interested in providing follow on financing as long as the company is performing in line with budget. The scaling- up of the loan facility can be used for acquisitions for expansion needs.

The scale-up feature of a cash flow lender allows you to efficiently raise capital, to fund the lifecycle growth of your business.

You will not lose control

Cash flow lenders think like equity investors, and use EBITDA as their operative measurement of a company’s creditworthiness. However, they do not exert control the way an investor would.

They are passive post-closing as long as you are performing in line with budget. They have no interest in getting involved at the operating level and leave all major strategic decisions to the senior management team.

You won’t have to give up shares to get the loan

Due to their need to balance the risk and reward profile, cash flow lenders get higher interest payments and also sometimes get an equity kicker. This equity kicker gives them an option to receive some additional return based on future growth.

At closing, they do not get shares but the right to receive additional upside based on certain conditions.

Your cash flow loan will have flexible repayment terms

Cash flow based loans are structured differently. In most instances, cash flow based loans have more relaxed repayment terms, meaning less repayment of principal per term.

Some even have no repayment of principal until a 100% balloon repayment at maturity. These favorable terms keep cash in your hands, which can be used to reinvest in your company’s growth or can prove crucial in avoiding liquidity problems.

You will build a close relationship with your cash flow lender

Cash flow lenders have a traditional approach to lending and seek to form relationships with their borrowers. They are open to learning about the business and are there to help the company, if asked to by management.

Lending relationships are valuable tools for growing businesses.

Your cash flow lender is vested in the growth of business

As mentioned earlier, cash flow based lenders are vested in the growth of the businesses they lend to. If a cash flow based lender provides a loan for your company, they are reliant on your cash flow to receive payment back.

This positions the lender on your side in a way that most other loans simply do not. Should times become difficult (and hopefully they never do), a cash flow lender is on your sidelines cheering for you, far more supportive than other forms of lenders.

The cash flow lending process helps you think at a higher level

Cash flow lenders are smart and think about the creditworthiness of a company deeply before making a loan. They assess the company financially, strategically, managerially, and operationally.

Going through this process helps a company learn about its value drivers and how the market sees its strengths and weaknesses.

Cash flow lending lets you build your business like an investor would

Equity investors use cash flow lenders to pay part of the purchase price of their acquisitions. Through directly accessing a cash flow lending facility, you become your own equity investor.

Rather than bring in expensive equity investment, a cash flow lender will give you that hard to raise financing, enabling you to fund serious growth and build serious value.

As the Fed decides to ease interest rates, middle market acquisition financing structures will benefit in a number of ways. The underlying values of middle market companies will increase leading to a higher enterprise value and lower loan to value ratios for existing portfolio companies of acquisition financing lenders.

The role of acquisition financing is infrequently elevated above a functional transactional one. When a business needs financing to acquire, they go to the market and source acquisition financing to supplement their equity investment to close the deal. Despite existing in many different forms, acquisition financing is rarely explained in terms of the value it brings to the acquirer.

Acquisition financing underwriting usually focuses on business and financial issues that underpin the stability of cash flow. Providers of acquisition financing usually validate the durability of a company’s competitive advantage and the depth of its resource base. Environmental issues are usually not a major part of the analysis in today’s service and technology-based economy.