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Leveraged Recapitalization as a Viable Option

There are multiple ways a business owner can bring capital into a business. Most often, when owners think of how to raise capital, bringing in an equity investor is usually what comes to mind. Other times, it may be in the form of a bank loan for a specific purpose, such as buying a new piece of equipment. Or, perhaps, it means selling a significant portion, if not all, of the business.


A leveraged recapitalization (also called a leveraged recap) could be a good alternative to selling all or part of the equity in your business or getting bank financing for specific projects. It allows the owner of a company to mitigate overall business risk and pocket some additional cash while still participating in the growth and eventual sale of the company. Leveraged recaps can also be used as a means of transferring ownership to a family member or management team. Further, this solution often comes without a personal guarantee, giving the owner added peace of mind. Finally, a leveraged recap can provide a tax shield (please consult your tax professional to make sure you understand the tax implications for your specific situation).


These do come with some risks. Leveraged recaps typically add a significant amount of debt to the business, necessitating an increased focus on providing positive cash flow sufficient to cover the higher interest and principal payments. However, this also creates incentives for good management teams to improve operational efficiency and dispose of non-operating or underperforming assets. Doing so has the long-term effect of increasing the overall value in the business. Fulham Partners can guide you through this process.


When looking to “take some chips off the table” and help fund growth in the business, consider a leveraged recapitalization. It may be the most effective option for achieving your personal and business goals. Please contact us today to discuss whether a leveraged recap might work for you.