From CFO to Another Secret Sauce Henri Steenkamp

How to Decide and How to Gain BDC Capital

Your smaller middle market company is looking for greater financing than a bank will allow under typical lending rules. But you need capital to expand according to your company’s vision and growth needs, so you’re determined to find alternative sources of funding. A Business Development Company (BDC) might be your best bet, but how do you know? You’ll first want to determine if your company fits the relevant criteria and then you will need to devise a strategy to help prepare your company for BDC funding.

The “Secret Sauce”

The companies that BDCs fund typically fit a certain stereotype — their revenue is somewhere between $8 million and $150 million, the majority of them are privately held, and they have significant capital needs that cannot be satisfied by bank loans. But BDCs assess all of these companies and only fund a small subsection of the potential credit opportunities that hold a proverbial secret sauce.

This distinguishing factor is usually a leading market position or niche with sustainable competitive advantages. The company might have an exceptional management team, promising growth prospects, stable historical performance, or strong margins and free cash flow. Whatever the advantage, it has to be clear to a BDC that your company has a powerful potential to grow and make money.

Preparing a Plan:

Securing funds from a BDC is not just about taking out a loan. It is also a long-term commitment to the BDC to achieve the promised projections and objectives. If accepted, the BDC lender will become a partner with the company management to help build the future of the company.

Therefore, the company’s CFO must first determine precisely what the funding would achieve and how to maximize the company’s returns. Of course, the return will need to cover both the growth expenses and the cost of getting the loan.

Your plan will be a critical part of convincing a BDC that your company is ripe for funding, but that preparation is not as straightforward as you might think. Many CFOs hire consulting firms to help identify system needs and devise a timed and structured plan with appropriate deliverables.

The sooner you start on your search for funding, the more flexibility you have to get the right deal. Assess your company’s performance early and you’ll be prepared to gain the capital necessary to help your company thrive.