Middle market business financing

Middle market business financing is provided by alternative credit funds and is structured on a company’s cash flow and EBITDA, not asset collateral. This type of business financing does not require guaranties, which makes it riskier for the lender than secured lending. This form of business financing is generally priced at 12% to 16% per annum. The middle market lender charges a higher interest rate than a bank due to the higher risk profile of the unsecured loan. The lenders frequently take a small equity kicker in the business to give them additional return in the deal. A middle market business financing loan is generally set at 3 to 3.5 times a company’s EBITDA. Middle market business financing is made up of long-term loans and the interest is usually only required for the first three to four years with a total loan life of five to seven years. Lenders become economically invested in the company due to the fact that they have a small equity kicker. This aligns the interest of the company and the middle market business financing provider with respect to increasing the value of the company. Middle market business financing companies generally look to provide capital for companies that are well established within their respective markets in order to limit risk and increase reward. The middle market is defined as companies with $10 million to $100 million in revenue that have stable financial trends and strong growth visibility.