Cash Flow vs. Asset-Based Borrowing

With Eaton Square’s growth into the US has come the opportunity for US and international mid-market companies to access US Private Market funding.

This is an important opportunity for mid-market companies as many CEOs believe the amount of reasonably priced senior capital their company can obtain is limited by the hard assets that can be pledged as collateral:  Inventory, receivables, machinery & equipment, etc.


That is simply no longer true.


Over the last two decades, the success and profitability of many businesses have become less dependent on owning hard assets.  Highly skilled people, technology, customer experience, provision of services and other forces are the predominant factors in a company’s health.  Even for asset-heavy businesses, the difference between success and failure is usually not their hard assets, but having the people, strategies, processes, systems and technologies to beat the competition.

What you need to know about Private Capital Markets

  • Private Capital Market participants have developed a deep and flexible toolkit to provide capital that fuels this evolution in the global economy.
  • Commercial banks, especially in the lower middle market, tend to be more asset focused.  Their basis for lending is having sufficient collateral so their loans will be paid off if the borrower has to be liquidated.
  • Non-bank lenders, and some commercial banks, are increasingly “enterprise” vs. asset-based in their investment analyses.  For these lenders, EBITDA, “Adjusted EBITDA”, cash-flow available for debt service, and getting comfortable with the quality and consistency of a company’s earnings have replaced the liquidation value of hard assets as the basis for providing capital to clients. 
  • Asset-based lending is still the least expensive, and for smaller companies perhaps the only form of senior capital available.  Once a company passes $8 million in EBITDA, private capital market participants want to talk.

Key differences between asset-based and cash flow borrowing include:

  1. Cost:  cash flow borrowing can have interest rates 2%-4% higher than asset-backed loans
  2. Capital Available:  commercial banks and asset-backed lenders are usually limited to fixed percentages of available collateral and top out at 3x EBITDA.  Cash flow lenders can go to 4.5x EBITDA on senior debt.  This additional capital availability can make a significant difference for companies that have good use for funds.
  3. Amortization:  banks will require a minimum of 10% fixed annual amortization and often more, depending on the terms of a loan.  Cash flow lenders can create amortization schedules that are flexible and may be as low as 1%-5% annually.  This allows more of your cash flow to be re-invested or used for dividends.

The flexibility available to companies seeking funds from the private capital markets is not a “one size fits all” proposition.  For many companies, a blend of asset-based and cash flow borrowing might create an optimal outcome.  For others, very low-cost asset-based borrowing might be the right way to go.


If you are the CEO of a healthy company where success and profitability are not based on having more hard assets, and where growth investments (whether for organic growth or external acquisitions), buying out partners or “taking some chips off the table” are smart things to do, cash flow based borrowing may provide more capital at a lower cost than you had thought possible.

*Securities offered through SPP Capital Partners, LLC: 550 5th Ave., 12th Floor, New York, NY 10036. Member FINRA/SIPC.

If you are a business owner and would like to discuss your debt options for preparing, feel free to contact me or one of my Eaton Square colleagues for a confidential discussion.

里斯 · 亚当斯

里斯 · 亚当斯
Global Managing Principal

Reece Adnams is the CEO and Global Managing Principal of Eaton Square, a Mergers and Acquisitions and Capital Services firm founded in 2008. His industry expertise incorporates IT Services, Engineering, Management Consultancies, Software and Technology and HR Services.

E: [email protected]
P: +61 0400 360 439



Stefan has over 30 years of experience in the private market includes hundreds of transactions in North America, Asia and Europe. Prior to becoming a principal at SPP Capital, Stefan was a Vice President in the Private Placement Group at Bankers Trust Company where he was responsible for origination, structuring and pricing of private placements for the Capital Markets Group, both nationally and internationally. Stefan is a cum laude graduate of Cornell Law School where he earned a J.D. degree.

[email protected] +1 212 455 4502