Cash flow loans are often referred to as term loans and amortize over three to five years. Creating a financial model will show the company's projected cash flow and, therefore, the amount that may be borrowed and an appropriate amortization schedule. This multiple will vary greatly between industries and is very dependent on the company's health and competitive position. Like any investor, the senior lender will consider your company's place in the competitive landscape of its industry, the strength of the management team and any perceived threats to the company's revenue streams and profit margins. Buyout efforts are often able to source more funds through a cash flow lender than an asset-based lender.
Interest rates are usually lower.
The lender will require financial covenants to control the company's level of debt and interest requirements relative to its cash flows. Understanding the different types of lenders and having a solid financial model will help you to understand the amount and the types of loans that are available to you in your buyout effort. All lenders were not created equally, and the best way to choose one is to send an information memorandum and financial model to a number of lenders and request term sheets. Your investment banker will know of interested lenders, and he or she will handle the process of receiving and analyzing term sheets. The term length and maturity.