5 Secrets to Securing Debt Financing for Founders
Founders often feel like they have to go with private equity to get the growth capital they need. But you don’t have to give up ownership of your business to grow. Attractive debt financing options can provide you the capital necessary for expansion while allowing you to retain control and your equity.
Debt financing involves borrowing money from lenders, which is then repaid over time with interest. Unlike equity financing, where you sell a stake in your company, debt financing can allow you to maintain full ownership. This can be a crucial advantage for founders who want to expand their business without diluting their equity.
Pete Connoy, founder and managing partner at ECS Debt Advisory and one of CEO Coaching International’s Diamond Strategic Partners, is an expert on debt financing. His firm has helped many founders get liquidity for their own needs or for an acquisition play. Pete’s extensive experience and strategic insights make him an invaluable resource for any founder considering this path.
Here’s his tips on what founders need to know before they go through a debt financing deal. You can download a quick-hits version of all of the key takeaways here, or read on for a sample:
1. Let go and outsource the financing
Can you finance your business yourself? Sure. But getting in front of the leadership at the very best lenders is nearly impossible for founders without inside connections. Alternatively, you can take the private equity route, but that gives up some of your autonomy. Or you can ask friends and family for the cash, which can take time (and will be a less reliable source of funds.)
Working with an expert significantly decreases the time and energy you have to put into the financing process. “If a founder were to do this themselves, it probably takes six to twelve months,” says Connoy. “We’re specialists, and we only do one thing, which is execute financings. For us, it’s sixty days door-to-door. It only took us forty days to execute CEO Coaching International’s financing, for example.”
Private equity firms outsource the financings of their middle market portfolio companies to specialists (either internally on staff or externally like ECS Debt Advisory). Specialists give you access to borrowing money wholesale, paying less for more cushion and flexibility.
One of the greatest things you can learn as a founder and CEO is how and when to delegate. This is a no-brainer example.
2. Inside information is essential
Most founders come to their entrepreneurial career with deep expertise in a given subject, whether they’re selling a patented invention or bespoke services. But these same founders don’t always know about the black-box world of financing.
You know what they say — you don’t know what you don’t know.
“There are hundreds of lenders in the United States alone,” says Connoy. “You have to know who to go to, so inside information is essential. We have personal relationships with and know the cell phone numbers of the very best lenders for a U.S.-based middle-market company.”
You have to figure out the right lender to go to and then convince them that you’re a respectable return on time. It’s almost impossible to do this without the right inside information — the phrase, “It’s all who you know,” rings true here. It is unfair to expect middle-market CFOs to have deep relationships with the optimal lenders.
3. Deep lender relationships are based on volume
The difference between successful financing and high-cost issues? Relationships.
Connoy likens it to trying to snag restaurant reservations at see-and-be-seen tables like the Soho House in New York or Pijja Palace in Silver Lake. Even if you have their number, good luck getting a table without knowing someone on the inside.
“It’s not enough to know who they are,” says Connoy. “If you could find a time machine and go back to the ‘90s, you could call your bank for this kind of financing, but today, you can’t just do that. You have to know who they are and have a volume-based relationship with them.”
Lenders seek an excellent return on time when dealing with their financing prospects and they make a subjective determination of whether they believe a given borrower has what it takes to get to the finish line of a financing. Common lender concerns include:
- Is this borrower transactional rather than relationship-driven?
- Can this borrower get to the finish line?Are their ducks in a row?
- Will this be a good use of my time?
Lenders need to trust that you’ll be a good investment — and that it’s in their best interest to provide the loans. A specialist like ECS Debt Advisory will vouch for you and your business.
Learn more with our free one-sheet, 5 Secrets for Securing Financing for Founders!
Download a quick-hits version of all of 5 key takeaways by filling out the form below. You can also reach out to Pete directly.
Get All 5 Secrets
About CEO Coaching International
CEO Coaching International works with CEOs and their leadership teams to achieve extraordinary results quarter after quarter, year after year. Known globally for its success in coaching growth-focused entrepreneurs to meaningful exits, CEO Coaching International has coached more than 1,000 CEOs and entrepreneurs in more than 60 countries and 45 industries. The coaches at CEO Coaching International are former CEOs, presidents, or executives who have made BIG happen. The firm’s coaches have led double-digit sales and profit growth in businesses ranging in size from startups to over $10 billion, and many are founders that have led their companies through successful eight, nine, and ten-figure exits. Companies working with CEO Coaching International for two years or more have experienced an average EBITDA CAGR of 53.5% during their time as a client, more than three times the U.S. average, and a revenue CAGR of 26.2%, nearly twice the U.S. average.
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