Growth capital is defined as capital used to build new or to expand facilities for new and existing product lines, for strategic acquisitions, and for additional working capital. Companies are typically mid- to later-stage companies that have outstripped their internal capabilities to fund growth and their banks cannot meet their capital needs.
Our experience and deep relationships with capital providers (lenders, mezzanine funds and private equity) will result in the optimal combination of debt and equity to meet your capital needs.
Types of Growth Capital
Senior Debt - includes bank debt and loans from other financial institutions and can include revolving loans secured by current assets and term debt secured by property, plant and equipment. Borrower must have the credit quality and sufficient assets to secure senior debt, and for smaller companies includes the personal guarantee of the owners.
Mezzanine Debt – is positioned between senior debt and equity capital. Mezzanine capital has terms that require the repayment of the investment amount or conversion into equity capital. Mezzanine investors typically target a return of 15-20% over a 3- to 7- year period from a coupon or dividend of 10-12% plus ownership in the company. They are looking for companies with good growth prospects with cash flow to pay current interest. Mezzanine investors are typically passive investors but will have some board representation.
Equity Capital – is the riskiest capital on the balance sheet. Private equity funds and venture capital funds are institutional sources of equity capital. They require a high rate of return – upward of 30% or more. Private equity funds require an exit strategy and their time frame is 3 to 7 years from the date of the investment. Many private equity funds prefer majority ownership positions and control of the board of directors. Companies may or may not have current cash flow depending on the company’s prospects; however, private equity funds typically are looking for companies with earnings before interest, taxes and depreciation of over $2 million.