| Key Advantage | Restructure an insolvent or distressed property asset by using various methods under the corporation’s act to reset the capital stack and allow certainty and continue to trade |
| Can be completed prior to a receiver manager being appointed | Early intervention and proactive approach to the creditor pool can make huge savings in productivity and retain goodwill / brand value and profitability |
When a property business needs a fresh start, a DOCA can be arranged with an insolvency firm. The use of private credit debt as a means of financing has grown in popularity among firms, especially in cases where traditional banks are not available or offer less flexibility. Numerous sources of funding are available, including mezzanine debt, real estate and infrastructure funds, distressed debt, unitranche oriented funds, senior direct lending, and special situations/opportunistic credit funds. As a result, it is getting increasingly important for company owners to comprehend these choices in order to guarantee that their enterprises obtain funding that is suited to their unique risk appetite, anticipated returns, and strategic requirements.
The purpose of this article is to help readers comprehend the following sources of debt financing accessible to companies (with a focus on the variety of alternatives provided by private lending in particular)
Common applications of debt financing, with an emphasis on once profitable or feasible property based business, that for example may have had some negative market conditions impact them like what has happened in COVID 19 with builders costs, site delays and market conditions being abnormal for a period of time.
Companies can present a clear and cohesive financial plan to potential lenders and investors by explicitly outlining the sources of funding for the proposed deal (e.g., equity, debt, or internal cash flows, etc.) and the specific uses of these funds (e.g., working capital, expansion projects, or debt refinancing). With this clarity, it is easier to match the debt structure and source of borrowed capital to the borrowing profile of the business (including its cash flow and repayment capacities). This reduces financial risk and increases the possibility of obtaining favorable terms from lenders.
It’s crucial to remember that borrowing money isn’t always the best option. The business’s current financial structure and risk tolerance will determine whether to use debt or equity. Since debt is a non-dilutive source of capital and can help businesses increase their valuation before an equity event (equity raise, merger, or sale), it can be considered a better option than equity.
Since debt obligations are usually fixed in nature, we advise businesses to make sure they are aware of all obligations (including covenants and repayment profiles) and that they can service the debt for the duration of the facility, taking into account the potential consequences (such as the impact of expansion, the impact of temporary closures, and the timing of ramp-ups for growth initiatives).
The most popular type of funding for mid-market companies is senior direct lending. Mortgage AI has specialist insight and relationships to both private lenders, special situations debt funds
On a company’s balance sheet, mezzanine financing is a hybrid type of capital that falls between debt and equity. Usually, it involves borrowed capital that, upon the repayment of other senior obligations, grants the lender the right, in the event of default, to convert to an ownership or equity interest in the business.
When a business is having trouble paying its debts on time or needs to go through a formal restructuring process, it is considered to have distressed debt. In many cases, debt enables companies to restructure their balance sheets and achieve operational turnarounds, which enhance their prospects. Depending on their security position with the borrower, incumbent lenders may also be ready to transfer debts at a discount in this situation.
Unique circumstances Debt is related to investment possibilities that result from exceptional or unusual conditions and have the potential to yield large rewards, but they also frequently carry a high risk. In order to support corporate restructurings, mergers and acquisitions, or other events that have a major influence on a company’s financial condition or market position, these are sometimes time-sensitive possibilities requiring quick and flexible cash.
One kind of loan financing given to early-stage, fast-growing businesses is called venture debt. Usually, startups that have already secured equity investment from venture capital (VC) firms employ it when they require extra funding to finance their expansion without further diluting their stock. In addition to extending the cash runway between equity funding rounds, venture debt is frequently employed in conjunction with equity financing.
Growth opportunities: Compared to traditional financiers, private finance can provide more flexible and individualized financing solutions, allowing for quick scaling and market expansion. Leverage or a back-ended amortization profile are two ways to give flexibility so that it can be adjusted to the borrower’s or opportunity’s growth profile.
Working capital: By protecting money against receivables, inventory, and trade credit, debt can be utilized to support ongoing operations and guarantee that a company has enough cash on hand. This aids in meeting immediate financial demands and preserving efficient operations. Also preserving any money spent on construction and planning for property. Mortgage Ai has been successful in assisting mortgage lenders that have problematic or defaulting loans by restructuring the capital stack via special situation debt funds enabling them to get their capital returned and redeployed into other projects.
Special Situations Private finance offers a financial safety net to help companies that are subject to seasonal or cyclical fluctuations control revenue swings and maintain stability during slow market times.
We can guide you toward the best course of action for the origins and purposes of your personal debt. Get in touch with our debt advisory team for additional details.
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