Your Cash Flow Bridge to Middle Market Growth

Posted on: December 29th, 2017

cash flow bridge Bridges are essential parts of our transportation infrastructure – letting us transit freely over otherwise unpassable obstacles. They provide the foundational stability to support a journey over a risky stretch, and safely deliver you back to terra firma, further down the road.

Their soundness and structure take the risk out of going from point A to point B. A corporate growth journey requires a similar level of transitional support. A business starts in the garage, and then ventures out to main street and then to the local highway.

At some point, it will enter the interstate highway and encounter a bridge taking it from one region to an entirely new region, perhaps a new oasis of economic opportunity.

Capital is a lubricant for this journey and there is no more foundational capital block than a simple cash flow loan. Cash flow loans impart a bridge like level of transportation to company’s moving down the road, allowing for greater resource fuel and accelerated speed.

Cash flow loans have long maturities and require little to no principal repayment. They allow a company to transition in size and depth, without undue pressure to liquidity or collateral.

Growth companies need time and space to evolve and mature. They usually grow in a stair step manner, with a large upfront investment followed by a revenue and profit boost a few years down the road.

The investment phase of the journey is often unpredictable, and can easily be over budget and put strain on finances. At a point where investment risk is the greatest, it is not easy for a company to continue the journey, when worried about running out of cash.

With its long term and foundational strength, a cash flow loan is the bridge that delivers the company back to safety.

It provides the structure that connects upfront investment with long term cash outflow, creating liquidity equilibrium and long term growth along the way.

The deal world thrives on the belief that the institution providing acquisition financing will deliver on their promise. Lenders usually telegraph their capital capabilities early on during the sales pitch and give their deal sizes and hold levels for their fund.

Most mezzanine debt borrowers are rightly focused on the downside of breaking a covenant and for good reason. Most borrowers have had to deal with overly sensitive banks in the past which often exhibit trigger happy default notices during covenant breakages, especially when they want to get out of a loan.

Buried within the pedigreed bios of mezzanine debt lenders and private equity investors lies a secret plainly obvious to any average joe. While mezzanine debt lenders have strong educational and work backgrounds from large elite institutions, they usually lack real world experience of the kind that is valuable to understanding the businesses they seek to evaluate.