Business owners should learn who owns and funds the lender before signing, since that decides how the lender acts once the loan turns awkward. If a lender is using short-term money, they behave as such, no matter how good the first meeting went. It was important for Third Eye Capital to emphasise that it retained majority employee ownership, its processes, and its timelines after selling a minority stake to a permanent capital provider. Two facts sit in that announcement. Long-dated capital stood behind the lender, and the people running it still owned most of it.
That pairing matters more than it appears. When a private lender’s own backers can walk at short notice, the pressure lands on the borrower, usually in the month the borrower can least afford it. A lender with permanent money and staff ownership can wait for a plan to play out. Hardly any owner asks about this. All of them should.
Which situations fit best?
Alternative credit suits the cases a bank calls too complicated, and an owner has to be honest about whether the company is in one. The firm describes its work as helping management teams through complex change, with examples running from deep distress to very fast growth. A credit committee sees both the same way. Ratios look wrong, history is short, and there is no plan.
- The lender should have experience with restructuring because a first time encounter tends to call the loan.
- When a business outgrows its working capital, it needs a facility that grows with receivables and inventory.
- The lender needs to be familiar with working with owner-run businesses without private equity sponsors.
- If the business’s value is based on contracts or equipment, the lender must be willing to consider them as collateral.
Weighing expertise against capital
Various amounts of operating help are included in the price of a lender. A 2021 announcement credited this combination of tailored financing and operational expertise with helping portfolio companies succeed. How much attention is paid to your money by the lender is important to owners.
- Restructuring and legal staff in-house means the lender can help shape a turnaround, not merely pay for it.
- A lender that has financed more than a hundred companies has usually seen the owner’s problem before.
- A lender planning to stay involved asks harder questions at the start, and the loan fits better for it.
- A lender that only wants to deploy capital moves faster and disappears when results slip.
Terms worth reading twice
The covenants, repayment dates, and security clauses used by lenders happen when a quarter goes badly.
Repayment should follow how the business collects cash, or it will be breached on a predictable date.
- Covenants should test what the plan can influence.
- Security should state plainly what can be taken and when.
- The term should outlast the change the loan is funding.
Owners with alternative credit know what loans they are seeking, who is lending them, and what they can expect from that lender if they have a bad month.