As an equity provider, you’ve made investments in your portfolio companies based on evaluations of their growth or turnaround potential. Strong deals are built on a goal of excellent returns for both you and your sponsored companies. However, growing companies can have a wide range of needs, not all of which might be met by equity financing. Developing solid, leverageable financial relationships can help your sponsored companies obtain funding for optimal growth.
Funding Strong Growth Goals
Long-term business growth plans typically include diversifying product lines or increasing geographic reach. This could mean addressing changes in customer preference with new products, leveraging currently successful products to expand lines, or taking a local or regional company into national or international markets.
To support these growth plans, you may need to attract and incentivize a strong management team, purchase new equipment, develop a new distribution strategy, undertake strategic marketing, or hire additional skilled staff. All require capital.
Accessing Creative Financing
For a sponsored company at the gateway of a period of strong growth, but in need of capital to pass through that gateway, a traditional banking partner may not be appropriate. Banks are highly regulated, limiting their financing options to a series of standardized products.
Alternative lenders, on the other hand, have more leeway to tailor financing to the needs of a specific company or set of circumstances. This ability to be flexible and creative can make a significant difference to a company in a transitional phase of growth and also to your bottom line, as an investor.
Asset-based lending (ABL) often can be the most affordable form of financing for a growth company. ABL is a very flexible source of credit for a company with valuable assets such as commercial accounts receivable, raw and finished goods inventory, or machinery and equipment.
In addition, ABL can be used for a wide variety of purposes, including smoothing out seasonal peaks and valleys in revenue, facilitating expansion, acquiring another business, refinancing an existing credit line, or supporting restructuring.
Evaluating a Financing Partner
Partnership with a strong, reliable and creative financing firm can support sponsored companies’ growth without adding burdensome constraints or financial pressures. Look for a specialty finance partner with:
- Prior experience working with private equity firms
- High-level decision makers who are readily available to help structure your deal
- Understanding of your sponsored company’s industry, its conventions and specialized assets
- Quick deal turnaround
- Reliable record of delivery
- Good capitalization
- A creative, problem-solving mindset
- Excellent references