How lenders size cash flow debt
| Method | How it works | Best for |
|---|---|---|
| Multiple of EBITDA | Total debt capped at a multiple of earnings, typically up to around 4x senior and up to 5x for acquisitions or with private credit | Established, profitable businesses with low ongoing capital spend: services, distribution, software, healthcare |
| CFADS and debt service cover | Debt sized so that cash flow after tax, capital spend and working capital covers interest and repayments, typically by at least 1.2x to 1.5x, often with repayments shaped to the cash flow | Capital-heavy or asset-replacement businesses (fleets, vehicles and equipment operators, infrastructure-style assets, leisure sites), contracted or long-term revenues, and businesses where cash flow has recently turned positive |
| Recurring revenue | Debt sized on annual recurring revenue (up to around 70%), with covenants on revenue and cash rather than EBITDA | Subscription and SaaS businesses that are growing but not yet at full profitability |
Why it matters: for a business that has to replace equipment or fleet every few years, EBITDA can be high while the cash left after that spending is much lower. Sizing on CFADS shows lenders the real repayment capacity, and it can unlock debt for businesses that a simple EBITDA multiple would undersize or decline. Most of the work in a raise is choosing the right measure and showing it convincingly in the model.
When cash flow lending fits
- Strong, recurring or contracted earnings, with a clear record of positive cash flow
- Asset-light businesses (services, technology, platforms, operators) where ABL would raise too little
- Growth, acquisitions, refinancing or shareholder recapitalisations
- Businesses whose cash flow has recently turned positive and is building month by month
Who lends at this size
| Lender type | Typical approach |
|---|---|
| Bank leveraged and mid-market teams | Senior term loan plus RCF for established, profitable businesses |
| Challenger banks | Senior debt for owner-managed businesses, sometimes with government-backed support |
| Private credit and direct lending funds | Unitranche or stretch senior, higher leverage, more flexible structures |
| Recurring revenue lenders | Debt sized on ARR for subscription businesses not yet at full profitability |
Typical terms
| Term | Typical range |
|---|---|
| Leverage on EBITDA | Up to around 4x, up to 5x for acquisitions |
| Debt service cover (CFADS-based) | Minimum around 1.2x to 1.5x, depending on the lender and the predictability of cash flow |
| Recurring revenue | Up to around 70% of annual recurring revenue |
| Pricing | From 2.5% over Bank Rate on senior debt and RCFs |
| Term | 3 to 7 years, sometimes with interest-only periods or repayments shaped to the cash flow |
| Covenants | Leverage, interest cover or debt service cover, tested quarterly |
What lenders look for
- Earnings quality: recurring, diversified and backed by monthly management accounts
- Cash flow available for debt service, comfortably covering interest and repayments
- A credible forecast with headroom against covenants
- A management team with a track record of hitting its numbers
How long it takes
Typically 8 to 14 weeks: indicative terms in 2 to 4 weeks, then credit approval, financial and commercial due diligence, and legal documents.
How GBF runs a cash flow raise
We build the cash flow and debt service model and the credit paper, keep lenders updated as monthly trading builds the track record, and run lenders side by side so leverage, covenants and pricing are tested against each other.