Senior Stretch Loans: A Great Financing Option for Small Companies

Between working in your business and working on your business, it can be very hard to find the time to locate financing for growth. Luckily, Midstreet Capital offers business owners tools such as senior stretch loans so we can be your one stop funding team.

What’s a Senior Stretch?

Senior stretch financing refers to the order in which loans are ranked. For example, if you get a primary loan to establish your business at 65% of equity, you may need more cash to grow.

This additional funding for growth can be obtained through mezzanine loans. These loans generally have a higher interest rate but can be raised quite quickly.

Mezzanine debt can come from a different lender, which will require two qualifications and additional paperwork. This is the debt you can use to grow and expand your business.

However, a senior loan provider can stretch to offer a junior loan. As this second loan increases the risk to the borrower, it often has a higher interest rate. However, when putting together a package of stretched senior funds with junior debt, the borrowers need only apply and qualify once. In addition, lenders can hold all the debt of a particular company.

In the event of non-payment, the holders of both the junior and senior loan are fully aware of their collection options.

Benefits of Unitranche Financing

A unitranche loan is close to a senior stretch in that multiple loans come from one lender. However, while senior stretch loans and their junior loans are given at different interest rates, a

unitranche form of lending can be offered at a blended interest rate.

Depending on the interest rates, the payment difference between a senior / junior loan structure and a unitranche may be a wash. Both loan structures make things easier for the borrower as they cut down the loan qualification process. Both loan products make it quick to borrow in the case of a sudden opportunity.

Ranking Debt

Junior debt presents more risk to the lender as the senior debt is first in line to be paid off. When putting together funding packages, it may confusing to note the higher interest rate on the junior loan.

Small Business Financing Opportunities Are Expanding!

Senior stretch financing structures were once the tool of large companies. However, non-bank lenders are now offering these flexible and innovative loan tools to small businesses.

While small businesses are often the most agile companies to work for, it can be problematic for them to obtain quick sources of funding. The ability to convert a primary loan into a senior stretch is significant.

Of course, it’s important to remember that non-bank lenders may charge a higher interest rate. In return, many small business owners will greatly appreciate the rapid access to cash available and the term flexibility.

Putting together the right financing to provide your business necessary capital is our goal. Tools such as senior stretch loans offer you the chance to borrow from just one source. Contact us at Midstreet Capital for funding information today.