3 Major Types of Financing
hosted by: David Mariano, Director and head
of the firm’s Buy-Side advisory practice
3 Major Types of Financing
When trying to raise capital for your business, do you know all the options? There are as many combinations of financing options as there are businesses.
In this episode, Rebecca White returns to the recording studio to discuss the many types of financing available to middle market businesses. Rebecca also shares another financial sandwich recipe with listeners.
Questions answered in this conversation:
* What are the three major types of financing available to middle market companies?
* What is the benefit of using a non-bank financial institution?
* What is a good way to finance a business that is asset light?
* How does one approach a non-traditional lending institution?
* How do non-traditional lenders look at businesses differently? And why might that be beneficial to a middle market business owner?
* If I wanted to stay with my traditional bank, could I find another group within my bank?
* Do “airballs” work for growing businesses or stable businesses?
* How do covenants look differently from asset-based and cash flow groups?
* What are some of the benefits to using mezzanine financing?
* Is equity cheaper than debt?
* Where does a middle market business owner find sources of equity?
* How do reporting requirements differ for equity?
Key points in this conversation:
* There are many more financing options out there that offer more flexibility than you might be aware of.
* Many business owners are familiar with two of the different forms of capital but don’t realize that there is a third option available to them.
* Junior capital is often structured as debt on the balance sheet, sometimes accompanied by equity-like features.
* A capital sandwich (at 3:39).
* Finding an alternative senior lender can be beneficial for businesses at the lower end of the middle market.
* Non-traditional lenders have a lot more flexibility than traditional, senior banks, though the cost of capital might be slightly higher.
* Alternative lenders can also be ideal for service industry businesses.
* If you are not ready to leave your traditional bank, ask if they have a commercial group or middle market group focused on cash flow loans.
* Differences in covenants for asset-based loans vs. cash flow loans.
* With Mezzanine financing, business owners typically pay only the interest on their loan so they have more cash to invest in their businesses. When the balloon payment is due at the end of the term, their (bigger, stronger) business can now afford to finance that large debt with a traditional, senior loan from a bank.
* Rebecca’s advice to a business owner regarding equity versus debt (at 19:37).
* Equity investors don’t charge interest, but it isn’t free.
* Equity investors may want to have a board seat on your company but they can also be true partners.
* When trying to build capital for your business, don’t just look for the money, look for the right partner.
Resources mentioned in this podcast
* Click here for access to training and templates
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