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Few investors or CEOs have known what BDCsare and why they are advantageous to growing
businesses, but that situation is changing.
Here, then, are six reasons why BDCs are thrivingand will continue to grow as a source of capitalfor smaller, middle-market companies and why
CEOs should understand how valuable they are asa source of financing.
Evaluation as
a Growing Concern,
Not Just a Credit Risk.
1
A BDC looks at the entire business and its prospects forgrowth rather than just its credit history.
1.
A BDC looks at the entire business and its prospects forgrowth rather than just its credit history.
Banks under tighter scrutiny as a result of recent law andregulation now have less freedom in accepting risk.
1.
A BDC looks at the entire business and its prospects forgrowth rather than just its credit history.
Banks under tighter scrutiny as a result of recent law andregulation now have less freedom in accepting risk.
A BDC working with a bank can structure deals thatotherwise might not be acceptable.
1.
Focus on Relationships,
Not Just Transactions.
2
A BDC typically takes on an investment that is higher riskthan most bank portfolios can tolerate.
2.
A BDC typically takes on an investment that is higher riskthan most bank portfolios can tolerate.
This means the BDC needs to truly understand a company’sbusiness and to form an ongoing relationship with it, so itcan help the company to expand.
2.
A BDC typically takes on an investment that is higher riskthan most bank portfolios can tolerate.
This means the BDC needs to truly understand a company’sbusiness and to form an ongoing relationship with it, so itcan help the company to expand.
BDCs grow by doing their homework and maintaininginvestment discipline.
2.
Certainty of Closing
3
Once a BDC approves a company, there is a high certaintyof closing a deal without wasting time.
3.
Once a BDC approves a company, there is a high certaintyof closing a deal without wasting time.
Often those who arrange a deal are on the investmentcommittee approving it, unlike other financial institutions,where there are multiple levels of approval.
3.
Shrinking Capital Market
4
There are fewer banks with lower market shares and theircapital structures have become more conservative.
4.
There are fewer banks with lower market shares and theircapital structures have become more conservative.
This contraction has narrowed the capital window for manysmaller, middle-market companies, even stable andconservative ones.
4.
Customized Financial
Engineering
5
BDCs take on more financial engineering than just termloans.
5.
BDCs take on more financial engineering than just termloans.
BDCs with extensive experience in the lower, middle marketcreate customized, financing solutions for clients.
5.
BDCs take on more financial engineering than just termloans.
BDCs with extensive experience in the lower, middle marketcreate customized, financing solutions for clients.
As solutions-oriented lenders, they partner with businessowners, equity sponsors, fundless sponsors, family-ownedbusinesses and management teams to craft capitalstructures that enable them to pursue their business plans.
5.
Experienced Professionals
6
BDCs are staffed by professionals with deep experience,both in the private-equity side and the mezzanine andsenior lending side of businesses.
6.
BDCs are staffed by professionals with deep experience,both in the private-equity side and the mezzanine andsenior lending side of businesses.
They have closely examined thousands of companies andcan understand more extensively and quickly how tocustomize a financing solution for a client.
6.
BDCs are beginning to emerge as a significantforce in lending to smaller, middle-market
businesses, but there still is limited understandingof what they are and how they work.
CEOs who haven’t encountered them will findthem not only to be alternative sources of
capital, but easier to work with than traditionallenders, and conclude that they should be a
regular part of their financing tools.
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