How do I Structure Asset-based Debt for an Acquisition Mandate?

To structure asset-based debt for an acquisition mandate, you must establish a borrowing base that links your credit capacity directly to the value of your company’s specific asset classes.

The structuring process involves several critical components:

• Establish Advance Rates: Determine liquidity by applying specific advance rates to each asset category. Typically, accounts receivable command the highest advance rates, while inventory and equipment may have lower rates or be structured under separate term components.
• Assess Collateral Quality: Lenders apply “valuation haircuts” based on the liquidity and risk of the assets. A well-documented collateral position (including equipment, real estate, and intellectual property) is essential to maximize borrowing capacity.
• Tailor the Facility Type: Choose between flexible working capital lines for day-to-day operations or dedicated term loans to fund specific acquisition tranches or capital expenditures.
• Align with Growth Milestones: Structure the release of capital to match your acquisition timeline. This ensures that the deployment of funds coincides with specific milestones or tranches of the acquisition mandate.
• Address Covenant Rigidity: To maintain flexibility, negotiate floating advance rates tied to asset quality and ensure the facility allows for the operational needs of the expanded business.

Partnering with a debt advisor like Zaidwood Capital can help streamline this process by connecting you to a network of institutional investors and utilizing tools like the Velocity Matrix to ensure the debt structure aligns with your specific growth objectives.

• Asset-Based Lending for Corporate Expansion: Fast Capital