04 Nov Alternative Financing Solutions for Smoother Mergers and Acquisitions
Mergers and acquisitions (M&A) can be powerful growth strategies but are notoriously complex. Add financing challenges like months-long underwriting processes or rigid approval criteria to the mix, and it can quickly become a logistical nightmare.
Alternative financing solutions can make all the difference in how smoothly your deal progresses. Non-bank capital solutions offer speedy, flexible, and customized business loans to purchase another business or merge with another company. When you’re racing against time and juggling multiple stakeholders, expanding your financing options can smooth the road to success.
Basics of Alternative Financing for M&A
Alternative financing refers to capital sources outside of traditional banks. These include private credit funds, mezzanine lenders, revenue-based financing providers, asset-based commercial lenders, and structured capital or debt funds.
The appeal of alternative financing for your M&A strategy is that you access a variety of credit models. Greater variety means greater flexibility and customization. For a smoother business deal, you can tailor non-bank solutions to your deal size, industry, region, and post-acquisition growth plans.
Strategic Benefits of Non-Bank M&A Financing
Agility is your most significant advantage with alternative financing. With non-bank lenders, you get faster decisions and easier access to funds. Speed matters when sellers push the timeline or the deal involves multiple competing bidders. Alternative financing is quick enough to keep the merger or acquisition running smoothly.
Alternative loan companies also fund companies that struggle to work with banks. They use your business’s complete financial picture and the deal’s potential to approve financing for small-to-medium enterprises (SMEs) and companies with limited collateral or credit history.
Customization is another strategic benefit of alternative financing. These lenders understand and accommodate deal dynamics and your business’s finances. They fit the funding to you. Say you’re rolling over existing debt immediately before closing on the merger. Non-bank financiers can create repayment schedules and covenants to work smoothly with your post-close strategy.
You can also strategically protect your equity with non-bank M&A financing. Instead of bringing in additional partners or investors, you can use debt and hybrid instruments to fund the acquisition and retain your authority.
Alternative Financing Solutions for M&A Deals
Non-traditional financing companies design solutions to fund acquisitions and provide working capital post-close. These tools can ensure you strike the right deal and hit the ground running. Let’s walk through some of the most valuable alternative financing tools for mergers and acquisitions.
1. Mezzanine Financing
This hybrid of debt and equity is ideal when you need to fill a funding gap between senior debt and your equity contribution. It’s typically unsecured, carries a higher interest rate than senior debt, and may include warrants or conversion options. Mezzanine financing offers structural flexibility for your capital stack and protects your equity.
2. Asset-Based Lending (ABL)
If the target company has strong receivables, real estate, inventory, or machinery, you can leverage those assets for financing. ABL solutions offer approvals in seven to 14 days and generous borrowing limits up to 95% of the collateral’s value. Asset-backed products provide speed and flexibility when purchasing a business with valuable tangibles.
3. Revenue-Based Financing
This model allows you to repay capital based on a percentage of future revenue, so your payments adjust with your income. You can secure funding in a few days without diluting your equity to fund your needs before, during, or after your M&A. Revenue-based financing protects your cash flow when you face uncertainty post-acquisition or in the early stages of integration.
4. Business Bridge Loan
When you face pressure to move quickly with an acquisition and are still waiting on your long-term financing, a business bridge loan covers your funding gap. You can apply and secure up to $50 million in capital in a matter of days to move your business deal forward. Then you can use long-term financing or flexible repayment methods to pay off the bridge loan for the long term.
Qualities of an Expert Alternative Financing Partner
At the most basic level, different financing companies offer varying approval and funding speeds, repayment structures, customer support, and product options. Consider what you need from your financing to find a lender to meet those essentials.
To get the deepest level of customization from your financing, look for a partner with experience in your industry, region, deal size, growth plans, and the M&A process. These lending experts will offer strategic insight into capital structures and smooth the way for your business deal.
For example, pharmaceutical companies funding a merger in Cook County, IL, should seek expert mezzanine financing in the Chicago area with positive customer reviews from other businesses in the industry. Those experienced lenders will compare loan options, customize terms to your needs, build a strong capital stack, and support your goals through the M&A process.
Build Momentum, Not Bottlenecks
Your next M&A deal doesn’t have to be slowed down by rigid lending requirements or months of paperwork. Capital doesn’t have to be a bottleneck. Your business loans can work for you with the right experts and products. Alternative financing matches the urgency and complexity of your business deals, smoothing the way forward so you can build momentum and take your company to new heights.