Flexible capital: the bridge between debt and equity

Access to quick finance is one of the biggest challenges that entrepreneurs and high growth companies in India face today. On the one hand, traditional debt providers fail to factor in the equity attractiveness and /or the mismatch in cash flow especially in a high growth business, while  on the other, the equity financing route is constrained by size, is time consuming, and may take management focus away from the core business activities. 

This is where the role of flexible capital becomes essential. As the name suggests, flexible capital is a customized source of funding which helps companies achieve their fund-raising objectives by bridging the gap between traditional debt and equity, thus putting minimal strain on their cash flows. It not only facilitates lenders to ascribe value to flourishing businesses but also allows borrowers with financing needs to avoid any significant dilution / loss of control at an early stage. At the same time, it is comparatively cheaper than equity funding and provides an integrated platform for borrowers with complex financial needs to meet lenders looking for good risk / reward opportunities to deploy their capital. 

With the changing financial landscape and entrepreneurs having controlled access to capital, the current debt space has expanded beyond the traditional lenders. Providers of flexible capital, offering mezzanine and structured credit solutions, have considerably increased awareness of this form of capital by offering customized solutions to business owners and companies. Young, high-growth companies with aggressive expansion plans, established companies with emerging growth opportunities, companies undergoing transitions and restructuring, firms in need of strengthening of capital structure and companies looking for acquisition financing have emerged as the key users of this form of capital.

As an alternate funding source, it not only offers prepayment flexibility and tailormade repayment structures around future cashflows, but is also highly malleable in terms of tenure, coupon, moratorium, lock in, etc. It facilitates growth in the core business of companies and helps promoters achieve their ambitious growth plans by quicker access to optimal capital.

Flexible capital can help companies achieve varied goals at different points in the business life cycle and assist through certain transitions in the journey of a company: 

• Promoters can re-gain control of their businesses from PE investors and JV partners. Such solutions provide flexibility on exits by offering market linked exits, and repayment can be made by issuing warrants/equity, freeing up cash for business operations growth.

• Companies can invest in the growth of their subsidiaries to attain business expansion in a cost-effective and non-dilutive manner. Additionally, companies can use funds to acquire businesses by leveraging cash flows of the combined entity.

• It can attend to short term financing needs and act as a bridge to an event like a merger, IPO etc. It offers the companies an opportunity to engage with a completely new investor segment and entails minimal disclosure requirements unlike public market transactions.

Avendus Finance, the credit solutions arm of the Avendus Group, offers an array of bespoke flexible credit products to high quality promoters / corporate clients so as to help them meet their specific requirements.