Growth Capital Flexibility

In arriving at the right growth capital structure, a business needs to consider the amount of time involved in the growth strategy and the level of unexpected issues that might arise. Most growth strategies have many unknown variables and take years to properly execute. Many companies go in one direction, only to realize that they need to reposition. Businesses must have a capital safety net to allow them to move in a new direction and fight another day. Despite unexpected surprises, good management teams can change course and implement new plans. A growth capital structure needs flexibility so that the management team has the chance to follow through on this new course. The two most important elements to being able to change course are:

• Time to implement the new plan
• Capital to invest in the new plan

While this may appear to be common sense, most businesses operate without a capital safety net. If a growth capital transaction is structured with all short term debt, there is little opportunity to change course. A growth capital structure rich in structure value gives a company flexibility and options. High structure value consists of a balance of senior debt, mezzanine debt and equity.