Lower middle market companies (annual revenues $5 million to $100 million) had greater access to debt and equity capital in the first quarter of 2015 than in any quarter since the Pepperdine Private Capital Access Index began being reported in the late summer of 2012.
Lower Middle Market Financing Challenges-Early 2015
Though debt and equity financing options looked good for the lower middle market in early 2015, it is important to understand the significant difference in resources for a company at the low end of the lower middle market than the high end. Companies in the high end of the lower middle market have dramatically more experience and access to experts when raising capital than those with annual revenues of $5 million to $50 million.
Those lower middle market companies with revenues between $5 million and $50 million are often seeking equity and debt financing for the first time and often need trusted advisors to guide them in their new financing process. Many business owners in this size bracket don’t realize the best solution is a combination of debt, “debt like” and equity capital.
Companies graduating into the lower middle market often don’t know what kind of financing is available.
Often overlooked financing methods for the lower middle market include:
- Subordinated debt with warrants
- Mezzanine debt
- Leveraged asset-based loans
- Institutional equity
- Financing secured by trade credit
Although the access to capital for small lower middle market companies is more plentiful today, the process of finding, negotiating, and securing debt and equity capital can be challenging.
The Pepperdine study shows the reported difficulty of the debt and equity capital process – 2015 Q1
Lower middle market companies can be surprised with financing challenges
- Time required to complete debt and equity financing
- What kind of terms are negotiable
- How to position the company for future financing
- The amount of specialization that is available in financing
- How a new financing source is going to monitor its loan or investment
Sometimes it is difficult to manage one’s business and chase financing.
As a company grows, lenders and equity sources require more due diligence
- Reviewed and audited financial statements more often required
- Lower middle market companies often more complex
- Company valuation estimates may need to be negotiated
- Due diligence can take weeks or months depending on complexity
Lower middle market business owners who have been through the rigors of obtaining debt and especially equity financing will have an easier time than the management team of a company that has grown into the lower middle market organically. Companies new to the process often use a consultant.
Why Business Finance Solutions may be the best team to help you grow
- We have experience using multiple forms of financing in lower middle market companies
- We have experience financing many types of B2B businesses
- We understands how debt and equity capital sources do their due diligence
- We think like lenders and investors and can guide you through the process with less stress
- We have assisted a number of companies grow from $0 revenues to $20+ million in 5 years
- We have originated many medium to large asset-based lines of credit
- We focus on your company needs
We have what it takes to help many small lower middle market companies grow profitably.
Our greatest strength is helping small lower middle market ($5 million to $50 million) use several forms of financing including senior debt, subordinated debt, mezzanine debt, and institutional equity.
Please call us today at 512-990-8756 if you would like to discuss how our team may help yours!