Expansion Financing is defined as capital used to enlarge the size of a corporation through a variety of means. Expansion financing can be used for internal growth through organic measures such as launch of new products or the acquisition of new customers. Expansion financing can also be used for external growth through execution of mergers and acquisition.In its most simple application, expansion financing is money used by a corporation to increase its working capital or productive capacity to facilitate growth. While not directly related to any one form of capital, expansion financing can be a loan, an equity investment of a combination thereof.

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.

Expansion Financing

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