Growth capital is a flexible type of financing used to finance the expansion and growth of a business. This form of capital can be used for any corporate purpose that supports the growth of the business including product development, market development and acquisition. Growth capital can be a beneficial way to extend a company’s runway between rounds of financing. The extra time can be used to complete additional milestones that will raise the company’s valuation, or as insurance to ensure that all intended milestones are successfully accomplished.

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.

Growth Capital Explained

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