Debt Advisory

How a Debt Raise Runs, Step by Step

1. Diagnostics. The advisor reviews historical financials, any quality of earnings report, projections, existing loan documents and collateral.

2. Structure and priorities. Management and the advisor agree on the amount, the structure and the terms that matter most, such as covenant room or freedom to prepay.

3. Materials. A confidential information memorandum, a financial model and a data room are prepared.

4. Outreach. A targeted group of lenders signs confidentiality agreements and receives the materials. A focused list usually works better than a broad blast, which can signal a hard-to-finance deal.

5. Proposals. Lenders submit indications of interest and then term sheets. The advisor lines them up side by side on rate, fees, leverage, amortization, covenants and conditions.

6. Diligence and approval. The chosen lender completes field exams, appraisals, third-party reports and its internal credit approval.

7. Documents and closing. Counsel negotiates the credit agreement, the advisor tracks open points, and the loan funds.

Timelines vary with complexity. A simple refinancing with one bank can move faster than an acquisition financing with several lender groups and an intercreditor agreement.

Fees and How to Choose an Advisor

Fee structures for debt advisory work vary. Many engagements combine a modest retainer with a success fee paid at closing and tied to the amount raised. Some advisors credit the retainer against the success fee. Ask for the full fee terms in writing, including expenses and any tail period during which a fee is still owed if you close with an introduced lender after the engagement ends.

When comparing advisors, ask:

• How many financings of a similar size and type have they closed in the past few years?

• Which lenders have they worked with in your industry, and which have declined similar deals?

• Who on their team will do the day-to-day work?

• Do they accept any payment from lenders? An advisor paid only by the borrower has cleaner incentives.

• Can they support you after closing on amendments and future raises?

Frequently Asked Questions

Is a debt advisor the same as a loan broker?
The roles overlap, but the scope usually differs. A broker often places a single standardized loan. A debt advisor typically designs the structure, runs a competitive process across several lender types, and stays involved through closing.

How large does a company need to be for debt advisory to make sense?
There is no fixed threshold. The value tends to rise with the size and complexity of the financing. Companies raising several million dollars or more, or combining senior and junior debt, are the most common clients.

Can an advisor help if we already have a lender we like?
Yes. A light market check can show if your current lender's terms are competitive, and it often improves the final offer even when you stay with the incumbent.

Does hiring an advisor guarantee better terms?
No. Results depend on the company's credit profile and market conditions. An advisor can improve the odds and save management time, but no one can promise approval or a specific rate.

Related Guides

• Middle Market Lending explains who lends to mid-sized companies and how those deals are underwritten.

• Alternative Lending compares financing options outside the traditional bank loan.

• Non-Bank Lenders profiles direct lenders, finance companies and other private sources of credit.

• Senior Debt covers the first-priority loan at the base of most structures.

• Unitranche Financing explains the single blended loan used in many acquisitions.

• Subordinated Debt looks at junior capital, mezzanine notes and second lien loans.

• Cash Flow Lending shows how lenders size loans on earnings.

• C&I Loans walks through the core commercial and industrial loan products banks offer.

Explore Financing Options for Your Business

The right debt structure can lower your cost of capital and leave room to grow. Start by pulling together three years of financial statements, a current projection and a summary of existing debt. With that in hand, you can explore financing options that match your company's size, collateral and goals, with or without outside debt advisory support.

Debt advisory is independent help with raising, refinancing or restructuring business debt, provided by an advisor who works for the borrower rather than for any one lender. The advisor's job is to find out what the credit markets will offer, run a competitive process, and negotiate terms that fit the company's plans.

Most owners and finance chiefs raise debt once every few years. Lenders do it every day. A good advisor narrows that gap with current knowledge of who is lending, at what leverage and with which covenants, so management can keep running the business instead of fielding term sheets.

What a Debt Advisor Does

The work goes well beyond making introductions. A typical engagement covers six areas:

• Capital needs analysis. Sizing how much debt the business can carry based on cash flow, collateral and growth plans, and how much cushion to keep for a weaker year.

• Structure design. Choosing between a single bank facility, a mix of senior and junior loans, or one combined loan from a private lender.

• Lender selection. Building a short list of lenders that actually fund deals of that size, industry and risk profile.

• Marketing materials. Preparing a lender presentation, financial model and data room that answer underwriting questions before they are asked.

• Negotiation. Comparing offers on more than price, including covenants, amortization, prepayment terms, reporting duties and default triggers.

• Closing support. Working with company counsel through the credit agreement, security documents and any intercreditor agreement.

Some advisors stay involved after closing, helping with covenant amendments, waivers and the next refinancing.

When Companies Bring In an Advisor

Outside help pays off when the structure is complex, the timeline is tight, or a bad term would be costly. Common triggers include:

• Acquisitions. A buyer needs committed financing that matches the purchase timeline, often sized on the combined company's earnings.

• Upcoming maturities. Testing the market well before a loan comes due gives the company options and keeps the current lender from setting terms by default.

• Dividend recapitalizations. Owners borrow against the company to take cash off the table without selling equity.

• Growth projects. A new facility, a new market or a large contract that needs working capital ahead of revenue.

• Ownership transitions. Management buyouts, family successions or a partner buying out another partner.

• Financial stress. Covenant breaches or falling earnings, where the work shifts to amendments, forbearance or replacing a lender.

The Building Blocks of a Debt Structure

Most mid-sized company financings combine a few standard pieces. Knowing them makes term sheets far easier to compare.

• Senior debt. The first claim on cash flow and usually on collateral, carrying the lowest rate in the structure. It often pairs a term loan with a revolving line of credit.

• Subordinated debt. A junior loan repaid after the senior lender and priced higher for that risk. Mezzanine notes and second lien loans fall in this group.

• Unitranche financing. One loan from a single lender or small group that replaces separate senior and junior layers with one blended rate and one set of documents.

• Cash flow lending. Loans sized on earnings, usually measured as EBITDA, rather than on the liquidation value of assets.

• Asset-based lending. Revolving loans sized on a borrowing base of receivables and inventory, often a fit for companies with uneven earnings but solid collateral.

The right mix depends on how predictable earnings are, what assets the company owns, and how much flexibility management wants on prepayment and covenants.

Who Lends to Mid-Sized Companies

Middle market lending covers companies that have outgrown small business loan programs but are too small to issue public bonds. There is no single official definition. The Federal Reserve's Senior Loan Officer Opinion Survey, for example, groups large and middle-market firms together as those with annual sales of $50 million or more, while many private lenders define the segment by EBITDA instead.

The lenders fall into three broad camps:

• Banks. Commercial banks make C&I loans, revolving lines and term loans, usually at the lowest cost, but with tighter leverage limits, more covenants and an expectation of deposit and treasury relationships.

• Non-bank lenders. Direct lending funds, business development companies, finance companies and insurance company investors. They often lend at higher leverage with fewer covenants, at a higher price.

• Alternative lending sources. Revenue-based financing, equipment finance, factoring and other specialty products for companies that do not fit a standard credit profile.

An advisor adds value by knowing which of these lenders are active in a given industry and deal size right now, since appetite shifts with the credit cycle.