What Is a Middle Market Loan? Definition and How It Works
A middle market loan is private credit for mid-sized companies, often from $1M to $100M+. Here is how these loans work, who qualifies, and how to apply.
A middle market loan is a loan made to a mid-sized company, usually a business too large for a small business loan and too small for the public bond markets. These loans typically come from private lenders such as credit funds and finance companies rather than from large public banks. Thrive Funding arranges this kind of financing for middle-market companies seeking $1M to $100M+, but it does not lend the money itself.
Definition
The term "middle market" describes companies in the space between small businesses and the largest corporations. There is no single legal definition. Lenders usually set the band using company size, such as annual revenue or EBITDA (earnings before interest, taxes, depreciation and amortization). A middle market loan is the debt that a lender provides to a company inside that band.
A typical "core" middle market company is fairly mature. According to Golub Capital, the average firm in this group is about 31 years old, has between 50 and 500 employees, and has between $10 million and $100 million in annual EBITDA.
Why the market is large
Middle market companies make up a large share of the economy. Golub Capital estimates the category includes about 200,000 companies in the U.S., employing up to one-third of the U.S. workforce. The same source reports that direct lending, the strategy that makes these loans, has more than $950 billion in assets across private drawdown funds and BDCs.
The market is also hard to see from outside. SOLVE says middle market loans are one of the least transparent areas of leveraged credit, and it tracks more than 36,000 middle market loans issued since 2000. Public price data is limited for most of these loans, which is one reason they are often arranged privately.
Common types of middle market financing
Middle market loans are not one product. The main types are:
- Senior debt. A first-priority loan, usually secured by the company's assets and repaid before other lenders.
- Asset-based lending (ABL). A revolving or term loan sized against receivables, inventory or equipment.
- Mezzanine debt. Subordinated debt that sits behind senior debt. It usually costs more and is often paired with equity features.
- Acquisition financing. Debt used to buy another business, often combined with the buyer's equity.
Some deals combine several of these in one package. Unitranche loans, for example, merge senior and junior debt into a single facility with one lender.
Who a middle market loan fits
These loans suit companies that have outgrown bank lines of credit or need financing that a standard bank will not provide. Common reasons include:
- funding growth or a new location
- buying a competitor or another business
- refinancing existing debt
- financing a sponsor-backed buyout
- borrowing against receivables or inventory
Lenders review the business's cash flow, debt levels, industry and collateral. Size matters too. Lenders set their own minimums for deal size, revenue and EBITDA, so a request must match the criteria of the lenders who will review it.
How the process works with Thrive Funding
Thrive Funding is a private credit arranger. It is not a lender, and the lender makes every credit decision. The process runs in five steps:
- Apply. The borrower completes one application at thrivefunding.com/apply. Requests under $1M receive an automatic decline. Requests of $1M and above move to matching.
- Match. Thrive compares the request with each lending group's criteria, including deal size, revenue and EBITDA minimums, industries, states, loan types and pricing.
- Screen. Matching lenders receive an anonymous deal summary and reply yes or no on fit.
- Introduce. Once the borrower agrees, up to three lenders that said yes receive introductions, best fit first. Each lender contacts the borrower in its own email thread.
- Compare. Lenders issue term sheets on their own letterhead. Thrive sends the borrower a side-by-side summary, and the borrower chooses one. The success fee is owed only if the loan closes.
The estimates Thrive shares before a term sheet are called indicative terms. They are not a term sheet and not an offer. Every email to a borrower states that Thrive is paid by its lending partners.
Middle market loans and private credit
Private credit is the broader group of loans made outside public bond and bank markets. Middle market loans are one large part of it. Direct lending, where a single fund lends directly to a company, is the largest part of private credit according to Golub Capital. When people ask about a middle market loan, they usually mean a private credit loan to a mid-sized company.
Things to check before you apply
- Size. Confirm that your request meets the minimum. Thrive's form accepts requests of $1M and up.
- Documents. Have recent financial statements and a clear use of funds ready.
- Collateral. Know what assets could secure the loan, since that shapes the loan type.
- Fees. Ask each lender for its full terms, not only the headline rate.
Sources
Frequently asked questions
What are middle market loans?
Middle market loans are loans to mid-sized companies, usually from private lenders. They fund growth, acquisitions, refinancing and buyouts. Their size and structure vary widely, from senior debt to mezzanine financing.
What is middle market financing?
Middle market financing is the set of debt and credit products used by mid-sized companies. It includes senior debt, asset-based lending, mezzanine debt and acquisition financing. Private lenders provide much of it.
What is the difference between a middle market loan and private credit?
A middle market loan is a loan to a mid-sized company. Private credit is the wider category of loans made outside public markets, and middle market lending is one large part of it.
How do I apply for a middle market loan through Thrive Funding?
Submit one application at thrivefunding.com/apply. Thrive matches it with lenders whose criteria fit the request, and each lender decides whether to offer terms. Thrive does not decide credit.
Chris Irving
Co-Founder @ Thrive
Arranges middle market financing with private credit funds, asset-based lenders and other lending partners.
