Workshop14 min readFocus · August

Capital Stack Strategy

When to use debt vs. equity vs. retained earnings.

Focus for August

Refinance / restructure window

August: market conditions, your performance, and the calendar — all line up best in late summer.

Refreshes on the 1st of every month

If a refinance or restructure makes sense for next year, August is when banks have bandwidth and the calendar gives you a real runway. Decide go / no-go now, not in November.

Decide refi go/no-go by Aug 31
If go: shortlist 3 lenders by Sept 15
Term sheets in hand by Oct 31
Close pre-Thanksgiving

Match capital to the move

Mismatched capital is how good companies get hurt. The instrument should match the cash-flow profile of the use.

Use of funds	Best instrument	Why
Working capital seasonality	Revolving line of credit	Self-liquidating; only pay when used
Equipment purchase	Equipment loan or lease	Asset secures the debt; matched amortization
Real estate	CRE mortgage or SBA 504	Long amortization matches asset life
Acquisition (cash flow positive)	Senior term debt + sub-debt	Predictable cash service
New product development	Retained earnings or equity	Cash-flow timing too uncertain for debt
Pre-exit recap / dividend	Senior + mezz	One-time, high cost OK for liquidity event

What lenders actually look at

Metric	Typical lender threshold	What to know
Senior leverage (Debt/EBITDA)	≤ 3.0x	Banks; sub-debt extends to 4-5x
Fixed charge coverage	≥ 1.20x	Includes principal, interest, capex, distributions
Customer concentration	Top 1 < 20%	Triggers covenants or carve-outs
Revenue trend	Flat-to-up 24 months	Declines kill deals, not just rates
Personal guarantee	Often required <$10M	Negotiate burn-off triggers

When to talk to equity

Growth opportunity exceeds debt capacity
Cash flows are too lumpy or too far out for debt service
You want to take chips off the table (recap)
You need governance/board upgrade as much as capital
Strategic value of partner > cost of dilution

More for Scaled Operator

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