Senior Stretch Loans: A ‘Big Company’ Solution for Private Companies

Private enterprises are increasingly benefiting from facilities that combine senior and mezzanine debt, formerly the preserve of larger enterprises, to provide more needed capital at lower prices.

By?Jeffrey Sweeney, Chairman and CEO at?US Capital Global

The financing options available to private businesses have steadily increased over the years, but not from traditional banks but rather from alternative lenders. Traditionally, small and lower middle market companies — those with up to $300 million in annual revenues — relied on an asset-based revolving line of credit together with term loans, depending on the nature of their business. Generally, the revolving line of credit was secured on accounts receivable and inventory, and the term loan on plant and equipment. Adding to this traditional financing arrangement, alternative lenders are providing cash flow lending as well, sometimes at quite moderate prices.

Increasingly, non-bank lenders have stepped in to provide financial products that offer new levels of flexibility. Their offerings now actually represent an expansion on traditional lending to smaller businesses.

Small and medium-sized businesses (SMBs) often require additional capital over and above what commercial banks are able to provide on their own. Often these businesses require a mix of financing, intelligently structured to meet their specific needs. The small-cap and lower-middle-market lending space is made up primarily of single-product lenders. Therefore finding the most appropriate mix at the best cost, and then coordinating the different specialty lenders to a successful closing, can be a difficult process. As a result, SMBs have increasingly been setting their sights on ‘unitranche’ financing, formerly the preserve of mainly the upper end of the middle market.

What Is Unitranche Financing?

Unitranche loans, also known as ‘senior stretch,’ blend senior debt and junior or mezzanine debt into a single facility. Rather than approach a senior lender, typically a bank, and then also one or more additional junior lenders, a borrower with a unitranche structure has a single secured loan facility, with all the debt subject to the same terms.

Continue reading the full article on our website?to discover the Advantages Of Unitranche Financing and to get an Insider’s Perspective.