Recapitalization Financing: Options and How to Apply
Recapitalization financing explained: what it is, how a recap loan works, an example, and how middle-market borrowers can request private credit for one.
Recapitalization financing is new debt or equity raised to change a company's mix of debt and equity. Companies use it to pay out an owner, fund a buyout, or reduce pressure on a balance sheet. Thrive Funding arranges private credit for middle-market companies that need this kind of financing, but Thrive is not the lender. The lending group makes every credit decision.
What recapitalization means
A recapitalization changes how a company is funded without changing its core business. The company might take on a new loan and use the proceeds to buy back shares, pay a dividend, or buy out a partner. It might also swap some debt for equity, or the reverse.
The word is often shortened to "recap." Lenders and advisers use the longer term in formal documents, and the shorter one in everyday conversation.
Is recapitalization the same as refinancing?
No. Refinancing replaces an existing loan with a new one, usually to get better terms or a lower rate. The total amount of debt may stay about the same.
A recapitalization changes the structure of the capital itself. The new financing often adds debt, changes the mix of debt and equity, or pays out equity holders. A company can refinance as part of a recap, but a refinance alone does not restructure ownership or the debt-to-equity balance.
Example of a recapitalization
Here is a simplified, illustrative case. A family-owned manufacturer has two owners. One wants to sell her stake, and the other wants to keep running the business. The company takes on a new senior term loan, uses the proceeds to buy out the departing owner, and keeps the remaining owner in control. The company's debt goes up, its equity holders change, and its capital structure is different afterward.
Real deals vary. The loan size, lender, collateral, and covenants depend on the company's cash flow, assets, and the lender's criteria.
Common types of recap financing
| Type | What it does | Typical use |
|---|---|---|
| Senior debt | First claim on assets and cash flow | Funding a buyout or payout to owners |
| Asset-based lending (ABL) | Borrowing against receivables or inventory | Working capital tied to specific assets |
| Mezzanine debt | Subordinated debt with more risk and often equity features | Filling the gap between senior debt and equity |
| Acquisition financing | Debt used to buy another business | Recaps tied to a purchase |
The right structure depends on what the company needs the money for and what it can support.
What is a recap loan?
A recap loan is a loan taken out to restructure a company's capital. The proceeds are used to buy out an owner, pay a distribution, or change the debt-to-equity mix. Lenders evaluate the company's ability to repay the new debt, so the loan is typically sized to cash flow and assets rather than to the owner's wishes.
What is middle-market lending?
Middle-market lending means loans to companies that are larger than small businesses but smaller than the largest corporations. Private credit funds and specialty lenders are common providers in this segment. Loan sizes for middle-market borrowers often start in the millions of dollars.
How to request recapitalization financing through Thrive Funding
Thrive Funding works with borrowers seeking private credit from roughly $1 million to $100 million or more. Requests under $1 million receive an automatic decline.
The process runs in five steps:
- Apply. You submit one application at thrivefunding.com/apply. It arrives as a lead.
- Match. Thrive compares your request with each lending group's criteria, including deal size, revenue and EBITDA minimums, industries, states, loan types, and pricing.
- Anonymous summary. Groups that match receive an anonymous deal summary and reply yes or no on whether it fits.
- Introductions. Once you agree, up to three groups that said yes receive introductions, best fit first. Each lender talks with you in its own email thread.
- Compare offers. Lenders issue term sheets on their own letterhead. Thrive sends you a side-by-side summary, and you choose one.
Thrive's estimates are called indicative terms. They are not a term sheet or an offer. Every borrower email states that Thrive is paid by its lending partners. The lending groups, not Thrive, decide whether to lend.
What to prepare before you apply
Lenders in every segment ask similar questions. Have these ready:
- The amount you need and what the money will pay for
- Recent financial statements and a current debt schedule
- Revenue and EBITDA for the most recent periods
- The company's industry and the states where it operates
- Any existing lenders, liens, or covenants that a new loan would need to work around
Clear answers to these help the match, because each lending group filters on them.
Sources
Frequently asked questions
Is recapitalization the same as refinancing?
No. Refinancing swaps one loan for another, often to reduce the rate. A recapitalization changes the company's overall mix of debt and equity, often by adding debt to pay out owners or fund a buyout.
Can you give me an example of recapitalization?
A company takes a new senior loan and uses the proceeds to buy out a departing owner. The company carries more debt afterward and has a different ownership structure. The example above shows how the pieces fit together.
What is a recap loan?
A recap loan funds a restructuring of the company's capital, such as a payout to owners or a change in the debt-to-equity mix. Lenders size it to the company's cash flow and assets.
What is middle-market lending?
It is lending to mid-sized companies, which are larger than small businesses and smaller than the largest corporations. Private credit funds are a major source of this financing.
Chris Irving
Co-Founder @ Thrive
Arranges middle market financing with private credit funds, asset-based lenders and other lending partners.
