Best Seller Growth Stories for Raising Mezzanine Debt

All Companies need an articulated growth story, particularly when in the market for mezzanine debt. Unlike bank loans, mezzanine debt lenders need enterprise growth in the form of EBITDA acceleration to ensure debt service maintenance and ultimate principal repayment.

Lack of clarity in a growth story usually leads to a muddled long-term plan, leaving the mezzanine debt lender unsure of the levers available to power the scale-up. Mezzanine debt lending has a penchant for familiar, classical growth stories where the business leverages its existing product line or sales channel to achieve faster organic or acquisition growth.

Growth with Mezzanine Debt

Well defined growth stories break the revenue projection down to understandable assumptions such as units sold, market share penetrated, new customers added, or incremental market demand. The closer the growth metric is to an existing operating measurement of the business, the more credibility it will have. The key in developing your growth story is to choose a construct that will capture the essence of your business and be relatable to the lender.

Lenders with large portfolios have experience with certain archetypal growth patterns including the razor -razor blade, selling service as part of a system sale, increasing the share of your customer’s spend, vertical integration and one stop shop capability to name but a few. These growth stories are well understood and embraced by lenders because they play off the existing strengths of the business. They do not involve having to create something new in the business and then gaining synergy from this new element. This introduces too much variability and uncertainty into the future.

When pivoting off an existing strength, it is easier for lenders to have a higher probability belief and rely on this outcome. When a growth story is familiar to a lender, they can relate to it and gain a better handle on the operational aspects of the growth driver. Prospective mezzanine debt borrowers should make sure that the financial projection model also reflects these operating assumptions. When you compose a clear, well defined growth path, you unlock your ability to attract mezzanine debt to fund your scale up.