Senior lender

What this seat actually does

Senior lenders provide the first and cheapest layer of acquisition debt, secured ahead of everyone else. Cash flow lenders size the loan against the combined business’s earnings; asset based lenders size it against receivables, inventory and equipment, which suits companies with a heavy balance sheet and lumpy earnings.

The covenants matter as much as the rate. A structure that is affordable in a good year and breaches a covenant in a mediocre one hands control of your company to your lender at the worst possible moment.

When you need one

Early. Talk to lenders while you are building the thesis, not after you have signed a letter of intent, because what they will lend against a business like your target shapes what you can credibly offer.

How they charge

Interest plus arrangement and commitment fees. The economics worth modeling are not the headline rate but the covenant package, the amortization schedule and the behavior of the whole structure in a bad year.

What to ask before you hire

• What would you lend against a business like this, and on what basis did you size it?
• What covenants would you set, and where would we sit against them in a year where earnings fall materially?
• What happens operationally if we trip a covenant?
• How much of the diligence will you require, and will you accept my QoE provider’s report?
• How many acquisition financings like this have you closed in the last two years?

How to compare candidates

• Model every candidate structure through a bad year, not just the base case. That is the comparison that matters.
• Relationship depth counts when something goes wrong, and something usually does.
• A lender who understands your sector will ask better questions and panic less.

The mistake owners make

Optimizing for the lowest rate and accepting a tight covenant package to get it. Money is the most replaceable input in an acquisition; control is not.

What this is not

Not mezzanine or private credit, which sit behind senior debt and cost more. Not an equity partner.

The Institute accepts no payment from any advisor, takes no fee tied to any transaction, and does not place or refer professionals for compensation. This entry describes a role, not a recommendation of any firm.