Financing Options

Subordinated Debt

Sub-debt is second position commercial lending that relies on positive cash flow rather than a first position on hard collateral, and refers to the layer of financing between equity and bank debt. It’s flexible financing which allows for growth without diluting equity, and is ideal for businesses that require capital but lack the assets to secure financing from the bank.

Mezzanine Financing

Mezzanine financing is similar to sub-debt, however it adds an equity or quasi-equity bonus to the return requirement. It is used instead of equity in the following situations:

  • Companies seeking a non-amortising or partly amortising term loan
  • Earlier stage or emerging businesses where positive cash flow is expected in the near future
  • In management buyouts and acquisitions where the buyer’s cash equity is low

Preferred Equity

Preferred equity is useful for management buyouts, expansion and acquisitions, and brings with it all the hallmarks of equity: a partnership approach, patience and a focus on value creation. Our intention is to provide the capital for as long as is needed, and the company can redeem it at fair market value at its option. Preferred equity ranks behind all debts but is preferred over common equity for such rights as payout and dividend payments.

  • Useful for management buyouts with between $3 million and $20 million in enterprise value
  • Enables management to acquire full ownership over time, even with a modest amount of personal equity up front
  • Also used for acquisitions and growth

First West Capital Financing Options

Subordinated Debt Mezzanine Financing Preferred Equity
  • Structured term loan, generally 3-7 years
  • Fixed or floating interest rates available
  • CDN or USD borrowing options available
  • Structured term loan, generally 3-7 years
  • Fixed or floating interest rates available, plus equity sweetener based on performance
  • CDN or USD borrowing options avavilable
  • As equity, the shares’ value is dependent on the company’s value
  • Invested alongside management’s investment in common shares
  • Offered in combination with subordinated debt or mezzanine finance

Repayment

  • Interest-only periods can be provided, followed by scheduled repayments
  • We can take into account seasonality, and can provide stepped payments
  • High ratio real estate loans can have longer amortisation periods

Repayment

  • Highly flexible repayment options:
    • Interest-only periods can be provided, followed by scheduled repayments
    • Non-amortising or partly amortising loan structures are available
    • Annual cash sweeps dependent on company performance

Repayment

  • Management may buy out the preferred equity at fair market value once the debt is repaid
  • First West Capital may refinance the buyout with a loan if required

Security

  • GSA (often in second position)
  • Limited personal guarantee
  • Inter-creditor agreement
  • Key person insurance
  • Postponements of shareholders’ claims

Security

  • GSA (often in second position)
  • Limited personal guarantee
  • Inter-creditor agreement
  • Key person insurance
  • Postponements of all shareholders’ claims
  • Warrant or similar agreement

Terms & Governance

  • Universal shareholders’ agreement governs the shareholder relationship
  • First West Capital is represented on the Board of Directors
  • All parties agree on an incentive plan that enables management to earn bonus equity upon achievement of key performance metrics
  • Preferred dividends paid annually or accumulating

 

Need more information? Contact us and we'd be happy to discuss your financing needs.

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