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Growth Capital Term Loans provide financing for general working capital and operations of the company. The proceeds of this type of loan are not restricted to a specific purpose similar to say an equipment financing loan. These loans are repaid over a multi-year term often 3-5 years. The purpose is to enable the company to fund expenditures during a high growth period and repay the capital over a longer period of time with cash flow generated from future, growing operations. Growth Capital Term Loans may have a period without principal payments (Interest Only Period), may require principal repayment evenly over a defined period, or may have deferred repayment with a larger percentage of the debt repaid towards the end of the loan. These loans are generally secured with a blanket lien on all assets of the company and may or may not require intellectual property liens. Often a growth capital term loan serves one of two purposes:
The fundamental idea behind entering into this type of loan product is for runway extension. Accounts Receivable Formula Based Working Capital Facilities: This type of loan product is usually not used to buy long term assets or investments. Instead it's used to clear up current liabilities such as accounts payable, wages, and the like. The purpose of this loan is to finance everyday operations of a company where the borrower can pay down principal outstanding without incurring a prepayment penalty. The amount of debt available under an AR working capital line is dependent on the amount of eligible accounts receivable at any given point in time. The advance rate typically varies between 80-85% of Eligible AR with consideration given to international receivables. The pricing is almost always based on the Prime lending rate with a maturity date that ranges between 12-24 months. Given this type of loan generally carries the lowest possible cost of capital, it can be an effective way to blend down the overall cost of capital for a company. Revolving lines of credit are secured by a blanket lien on all assets of the company. An important consideration is the stage of the company and reliability of the revenue stream (and therefore accounts receivable base). It is important that a company not put itself in a liquidity crunch based on fluctuating A/R levels and therefore borrowing capacity under the A/R type of loan. As such, this can be an effective stand alone debt facility or simply a piece of a larger debt capital structure that incorporates either a term loan component, lease line or both. If a company finds it might benefit from both a A/R line of credit as well as a Growth Capital Term loan, it is important it manage the sources of capital to ensure conflicts don’t limit or preclude one type of financing from the other. Equipment Loans & Leases provide funding for the purchase of fixed assets including telecommunication equipment, furniture, fixtures, computers and other technology equipment, laboratory equipment, production equipment, manufacturing assets and other forms of fixed assets. Equipment financing and leasing allows high growth companies to acquire needed operating equipment while conserving liquidity and other more expensive forms of debt and equity capital. Equipment loans and leases are usually only secured by the underlying equipment or fixed assets and often include some percentage of softcost financing. Additionally, there are usually no restrictive financial covenants associated with this type of debt. Terms generally range from 24-60 months. Since the majority of the companies we work with are pre-profit, cash/burn organizations our subordinated debt product is often done in conjunction with a senior lender, usually one of the venture friendly banks. Most providers of debt capital who extend credit to cash/burn companies like to secure themselves with a lien in the assets of the company. They typically don't share the same risk tolerance as the debt funds and require more structure and security. This loan product is a short-term loan that is used until a company secures permanent financing. This type of financing allows the user to meet current obligations by providing immediate cash flow. The loans are short-term (up to one year) with relatively high interest rates and are backed by some form of collateral such as real estate, AR, plant and equipment or inventory. The idea here is that the financing is a bridge to a defined liquidity event (i.e. equity round, acquisition, IPO, cash flow B/E, etc.). For example, let's say that a company is doing a round of equity financing that is expecting to close in six months. A bridge loan could be used to secure working capital until the round of funding goes through. In that case the bridge loan would assume senior or junior position (assuming there is already a senior in place) on all assets of the company.
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