Focusing on only one side of your company’s value—tangible assets or enterprise value—could mean leaving capital on the table. This five-step framework helps CFOs assess dual value, unlock financing opportunities, and secure better deals for long-term success.
Middle-market CFOs examining only one dimension of company value—either tangible assets or enterprise value—often leave significant capital on the table.
Traditional banks have historically preferred tangible asset values (inventory, machinery, real estate) over cash flows for structuring financing for middle-market manufacturers and similar enterprises. However, focusing exclusively on asset-backed facilities can unnecessarily limit borrowing capacity and increase the weighted-average cost of capital.
Many businesses possess a second, often underutilized dimension of worth: enterprise value, calculated in consistent cash flow, growth trajectory, and operational performance metrics that drive valuation multiples. For growing middle-market companies, cash-flow-based debt structures can provide significantly higher debt capacity than conventional asset-backed lending while avoiding the permanent dilution associated with equity financing.
Rather than resorting to dilutive equity financing or compromising control to secure growth capital, forward-thinking financial executives are increasingly leveraging both asset-backed and enterprise value financing. This dual approach allows companies to structure deals that unlock more capital at lower costs, maintaining both operational control and financial flexibility.
Here’s a five-step framework for financing success
1. Know Your Value
Understanding your company’s dual value—both tangible assets and operational strength—is essential.
Two Types of Value:
- Asset Value: Accounts receivable, inventory, machinery and real estate used as collateral
- Enterprise Value: Consistent cash flow, growth potential and market positioning
Why It Matters:
- Asset-backed financing is often the cheapest capital for manufacturers and asset-heavy businesses
- Particularly for mid-market companies under $100M in revenue, non-bank cash flow lending may provide more capital at lower costs than equity
- Companies with stable EBITDA but limited assets may need cash flow loans
The Hidden Cost of Equity & Dilution:
Equity financing often carries an implied cost of capital equivalent to 25%+ IRR while permanently surrendering ownership and future value creation.
Consider this quantitative scenario:
- You own 100% of a $50M enterprise value company and require $10M for strategic expansion
- Selling a 20% equity stake yields $10M without debt service requirements
- When your company’s enterprise value reaches $100M, that 20% stake is worth $20M—effectively doubling the cost basis of your initial capital raise
- The implied IRR on this transaction significantly exceeds the cost of most senior and subordinated debt facilities
Action Step:
Conduct a side-by-side assessment of your company’s asset and enterprise value to determine optimal debt structure and appropriate capital sources.
2. Choose the Right Capital Source
With a clear understanding of your value dimensions, your next challenge is identifying capital providers who can effectively monetize those specific strengths—recognizing that the right financing partner brings strategic value well beyond the dollars deployed.
Cost of Capital Optimization:
- Private credit facilities typically carry a 300-500 bps premium over bank financing but offer expedited underwriting, higher leverage multiples, and greater structural flexibility
- The opportunity cost of delayed strategic initiatives or missed acquisition opportunities frequently exceeds the incremental interest expense differential
- Equity financing eliminates periodic debt service requirements but surrenders significant enterprise value appreciation and diminishes IRR on invested capital over time
Understanding the Lending Spectrum:
- Traditional banks vs. non-bank lenders
- Asset-based (ABL) lenders vs. cash flow lenders
- Boutique lenders vs. large institutions
- Local banks vs. national players
Key Selection Criteria:
- Choose lenders that provide the most value for your assets or enterprise value
- Prioritize lenders with deep experience in your sector
- Find partners who understand your business model and growth strategy
Action Step:
Identify and engage financing partners who not only meet your capital needs but also enhance your strategic positioning and long-term value creation.
3. Prepare Your Financial Story
Having identified potential capital sources, your effectiveness in securing optimal financing terms hinges on a deliberate narrative strategy (not just a deck)—one that frames your financial performance in terms that resonate with your specific audience’s investment thesis.
- Lenders focus on where you’ve been: they assess historical performance, stability, and cash flow generation as a proxy for repayment ability. So: focus your story on cash flow generation and repayment certainty
- Equity investors focus on where you’re going: They evaluate future potential and growth projections to justify expected returns. So: sell them on vision and upside
Get the Right Documents in Place:
- Historic and projected financials, asset listings and valuation, use-of-proceeds analysis, and risk mitigation strategies should be clear and concise
- Having legal, compliance, and operational documents ready in advance will prevent last-minute scrambling—and unnecessary delays
Action Step:
Tailor your financial narrative based on your audience—emphasize track record for lenders and growth potential for equity investors. And have the documentation ready to back it up and speed, not slow, the process.
4. Structure the Deal Strategically
With potential partners engaged and your narrative established, the architecture of your financing becomes paramount—balancing immediate liquidity needs against long-term strategic optionality.
Key Structural Considerations:
- Optimize the capital stack through strategic integration of senior asset-backed facilities and cash flow-based non-bank financing
- Negotiate flexible prepayment provisions with minimal or graduated call protection
- Build in covenant headroom (typically 25-30% EBITDA cushion) to accommodate business cycle volatility and seasonal working capital fluctuations
- Leverage multiple competitive term sheets to drive pricing compression and structural concessions
Action Step:
Compare multiple lending structures (and lenders), considering both near-term cost and long-term flexibility.
5. Negotiate the Best Terms
The final phase—negotiation—transforms preliminary discussions into definitive agreements, where overlooked details can significantly impact your operational latitude and future capital access.
Negotiate Key Terms Upfront:
- Financial covenants that account for business cycles
- Reasonable reporting requirements to avoid excessive compliance burdens
- Competitive pricing and fees while maintaining flexibility
- Additional debt capacity for future needs
- Repayment flexibility to minimize penalties
Negotiation Strategies:
- Negotiate business terms directly with bankers before involving lawyers
- Use lawyers for documentation, not negotiation
- Minimize legal revisions to control costs
- Prioritize flexibility over securing the absolute lowest rate
Action Step:
Leverage competitive offers to negotiate better terms while maintaining long-term flexibility.
Take the Next Step
Raising capital is complex — from selecting the right approach to finding the best-fit lender, there are countless ways to leave money on the table.
That’s where CAPX comes in: as the leader in connecting middle-market companies with the right financing partners, we streamline the process, helping you access the capital you need — on terms that work for you. Connect with us today to take the next step toward smarter, more strategic financing.
