Using Financing Tools to Survive and Thrive

June 12, 2024 Oak Street Funding

Financing Tools

Smart business owners who want their businesses to thrive are adept at using financing tools to reach their goals at nearly every stage in the life cycle of their businesses. The current market is healthy, businesses are growing, and deals are being made.

First-quarter 2024 deal numbers were near an all-time high, and valuations continue to climb. Owners with a wide variety of objectives are finding that creative forms of debt financing can help them take advantage of new opportunities for growth, prepare for succession, and fund personal goals.

In a recent Oak Street Funding webinar and On Point podcast, guests discussed how to use financing tools to meet needs of businesses in different stages. Adam Farag, vice president of strategic markets at Oak Street Funding, and Rob Madore, vice president of MarshBerry, stressed that it is important to understand what problem a business owner is looking to solve to recommend the right financing tool.

→ Uncover M&A Possibilities: Bridge Loans and Deal Creativity

How can financing help your business?

While most of the energy and focus during a merger is often focused on the transaction itself, companies that experience a successful merger -- in other words, one that achieves the desired goals -- invest a significant amount of time in envisioning the desired integration of the two companies and taking steps to ensure it proceeds as planned.

Overcome walls to growth

Many owners recognize they have hit the wall in terms of how much they can grow in their current format. They may need to purchase or merge with another business to gain the technology or talent needed to add services or break into a new market so they can scale to the next level. They can use a business acquisition loan to acquire a competitor, purchase a book of business, or expand into a new market.

Sell and exit

Owners looking to move out of their business can use succession loans and partner buy-in loans as part of a deal structure to facilitate the sale.


Sell and join something bigger

Owners who still want to remain active in the business but want to move into a larger firm can use a combination of succession loans and partner buy-in loans to sell their own business, merge with another, and/or gain equity in a new firm.

Bring others in the business into an equity position

Many owners structuring their succession plans are looking for ways to cover the delta between valuations in the market (which continue to rise) and the ability of internal successors to be able to purchase the business. A specialty lender like Oak Street Funding that’s experienced with recognizing cash flow as collateral can help put together a loan package to facilitate a wide range of succession deals.

Clean up balance sheet prior to sale

Over time, many businesses accumulate seller notes, equipment loans, and other types of miscellaneous debt. A business debt consolidation loan can help streamline the balance sheet to make financials clearer to potential buyers and facilitate the sale. A dividend recap bridge loan can also be used for this purpose.

Take liquidity out of the business ahead of sale

Owners who are not ready to sell but want to have access to some of their equity for personal use may find a dividend recap bridge loan meets their needs. Once used primarily by private equity investors, individual owners can now use this tool to help manage their capital within their business. Oak Street Funding’s experience as a cash-flow-based lender for the CPA, RIA, and insurance industries means they can design a loan solution to free up equity without excessive negative impact on cash flows.


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How a dividend recap bridge loan works

A dividend recap bridge loan is a tool for freeing up liquid capital from a business prior to its being sold. It’s used for two primary purposes: paying off miscellaneous debt to clean up the balance sheet or providing liquidity to the owner at a time when they can use it rather than at the time of the eventual sale.

As an example (using overly simplified round numbers), if a business has revenue of $10 million and cash flow of about $3.5 million, it may sell for about $30 million. Assuming the business and owner meet requirements, a lender might offer a dividend recap bridge loan of up to 2 to 2.5 times cash flow, or in this case, $7 million to $8.75 million. The proceeds of the loan can be used to pay off miscellaneous business debt to streamline the balance sheet ahead of sale or for the owner’s personal needs. The loan is amortized over a longer period – say 10 years – possibly with a balloon at the end, so that the debt service doesn’t cut into cash flow too much.

Bridge Loan Overview & Structures

Benefits of this type of financing include offering more control to the owner over their equity and being able to use those funds at a time of life when they might be needed more than at the time of sale.

Not every business is a great candidate for this kind of financing. The business needs to continue growing, even while covering the new debt service, and it can get complicated if there are multiple equity partners.



Financing tools can be used at all stages in the life cycle of a business – not just at the time of exit. Working with a specialty lender who understands cash-flow-based businesses can help you discover ways financing can help you and your business reach your goals.

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Disclaimer: Please note, Oak Street Funding does not provide legal or tax advice. This blog is for informational purposes only. It is not a statement of fact or recommendation, does not constitute an offer for a loan, professional or legal or tax advice or legal opinion and should not be used as a substitute for obtaining valuation services or professional, legal or tax advice.

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