Last year, my colleague and Saratoga Investment Chief Executive Officer Christian Oberbeck wrote an article for Chief Executive on Why CEOs Should Know About BDCs. While this endorsement does appear a bit biased, I couldn’t agree with Christian more on this point. Furthermore, since its publishing, the sector has surged. If you are a company with the potential to join a BDC’s portfolio, the benefits can prove to be immense. That is why your CEO must be up to date with every viable fundraising stream.
Straight away, Christian’s article lays out a key reason why CEOs need to know about BDCs. In an era where banks face stricter regulations, meeting the financial needs of fund seekers might not be possible. Meanwhile, BDCs are capable of providing capital to everything from office suppliers to sales rep firms. Since its inception in 1980, the sector has focused on the capital needs of businesses not in the high-level market. When the banking well is going through a draught, much of the BDC sector is able to quench a thirsty revenue stream.
In the current landscape, the aforementioned restrictions banks face limit their risk ability. Conversely, a BDC has the room to make riskier investments under the right terms–potentially providing the fund seekers a more ideal solution. Just because they can take on a bit more risk, BDCs still scrutinize every aspect of risk internally and externally before investing.
Not only can a BDC take on more risk, it is able to meet the needs of its portfolio companies with a more fluid financial structure. When banks are restricted, BDCs have more wiggle room while still operating under regulations. With banks in large shifting to more conservative approaches, a BDC can discuss the needs of a company and find a structure that benefits all parties.
Furthermore, while this is all business–a BDC wants to maintain relationships with its portfolio companies that ensures the best production all around. That relationship begins when closing the deal, a “high certainty” once a BDC approves of its potential portfolio company. Once the paperwork is signed, an ideal BDC relationship continues just like any healthy relationship that embraces healthy communication and reliability. With a staff of skilled professionals capable of managing the needs of every participant in the deal, a CEO can ensure a personal, professional experience with a quality BDC.
With this knowledge at their hands, your CEO may recognize the benefits of an alternative fundraising effort that often provides deeper funds and relationship management throughout.