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Jeffrey Sweeney is an investment banker with years of experience in direct lending and corporate finance for small- to middle-market companies. He is the chairman and CEO of US Capital Partners, an innovator in small- to middle-market business lending. US Capital Partners has been providing prompt, innovative, and reliable financing solutions across the United States and abroad for more than a decade.

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Unitranche Financing for Lower Middle Market Businesses

Businesses across the US are increasingly benefiting from US Capital Partners’ unitranche financing solutions, which offer the advantages of speed, simplicity, and certainty of closing.

Throughout the past year, US Capital Partners Inc. has continued to experience rising demand for unitranche loans (also known as “senior stretch”), which blend senior and junior or mezzanine debt into a single debt facility. Rather than approach a senior lender, typically a bank, and then also one or more additional junior lenders, borrowers with a unitranche structure have a single secured loan facility, in which all the debt is subject to the same terms. US Capital Partners has increasingly been providing such loans for its clients.

Unitranche Solutions for the Small and Lower Middle Market

First created in 2005, unitranche loans were used primarily for middle market transactions, by borrowers with annual EBITDA of up to $50 million and sales of up to $500 million. A deal size of about $100 million was fairly typical. Today, however, this hybrid loan structure is being increasingly used in the small and lower middle market, in place of traditional bank financing.

Advantages of Unitranche Financing

  • Simplicity. Unitranche structures have a single creditor agreement and single interest rate, and often also a single lender. This provides a streamlined process for ongoing administration and decision-making. Covenants become simpler to report and administer.
  • Reduced risk the deal will fall apart. With unitranche financing, there is no need for the borrower to mediate inter-creditor agreement negotiations between the senior and junior lenders.
  • Higher loan amounts. Risk is better mitigated if only one lender is involved. This can result in higher loan amounts because of the comfort of not having competing interests.
  • Speed. Unitranche facilities provide a faster way to borrow, because dealing with multiple lenders takes time, especially if the borrower is negotiating separate first and second lien facilities. This makes a unitranche solution especially suitable for financing acquisitions, for instance, where speed is often of utmost importance.
  • Savings. Unitranche loans can sometimes produce a lower cost of capital, because the entire loan amortizes over time, not just the senior debt as in a typical senior and mezzanine debt deal. With no competing interests between lenders, this type of financing also eliminates expensive legal posturing and duplicate default work with the borrower by competing legal counsel.

How US Capital Partners Can Help

The lending marketplace for smaller businesses continues to be highly fragmented. Specialty lenders are generally willing to lend only against their favored asset class. Finding the most appropriate mix of financing at the best cost, and then coordinating the different specialty lenders to a successful closing, can be a challenging process. In most cases, US Capital Partners has the ability to provide a single unitranche loan to vastly simplify the situation.

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