As the company grows, the company builds a consistent customer base and achieved stable income, generating a stable and repetitive asset. Also in this stage, companies will scale enough for their first institutional credit facility. At the same time, debt providers will either extend the term loan to the company’s balance sheet or lend via an SPV. Areas that should be focused in this stage include risk management, scale, and efficiency.
What Matters?
Durable Risk Management Procedures: as debt facilities grow, the typical providers will demand a certain level of maturity from both the assets and the company. Larger facilities from more institutional lenders usually also require compliance with more covenants and reporting requirements.
Long Term Partners: find the right partner(s) who are able to strike a balance between the right amount of debt and clear expectations on scalability. Debt facilities are committed relationships, not transactions.
Willingness to Invest Time and Money: Debt facilities at this stage typically take significant upfront resources to set up, but time invested should bring efficiencies to the company that will pay long term benefits.
What to Avoid
Pinching Pennies: do not skimp on legal and set up fees. If your company’s assets are truly durable and scalable, the long term benefits will vastly outweigh any upfront costs spent on high quality providers.
Short Term Thinkers: do not accept debt from partners who are short term thinkers and looking for something other than a long term relationship.
Unrealistic Sizing Requirements: debt facilities are often multi year commitments, avoid debt facilities with unrealistic and inflexible sizing requirements or reporting requirements the company is not ready to meet.
