CAPITAL RAISING OPTIONS & COSTS

Privately held companies have a wide variety of capital available to them. The most common are senior secured debt, unsecured senior debt, mezzanine (subordinated debt and preferred stock are the most common) and common equity. Hybrid forms of capital can be used to fill a specific niche in the capital structure and include 2^nd lien loans, “B” loans (longer maturities and slower amortization), PIK debt (pay-in-kind which permits some interest to be paid in debt), convertible debt, warrants, cumulative preferred stock, and convertible preferred stock.

The goal is to finance your company with a balance between safety and cost. Factors which determine the appropriate forms of capital include the level of liquid assets or fixed assets to pledge as collateral, cash flow leverage (Debt/EBITDA), coverage ratios, cash flow stability, industry, size of the company, and other factors.

Optimizing a company’s capital structure is part art, part science. Companies that are tangible-asset rich can use secured bank debt – the least expensive capital. After bank debt, other forms of capital move down the safety curve and up the cost curve as shown below. We will help you minimize the cost of capital.

– Costs vary widely by capital type. (source: Pepperdine University)