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April 14, 2020

SG Continues to Provide Structured Credit Solutions in Today’s Environment

Today’s environment has led to delayed M&A transactions, delayed capital raises, and limited access to bank / senior lender credit, which has created liquidity needs for many lower middle market businesses across the country. While these businesses scramble to gain access to liquidity via existing lenders and the SBA (and other federal, state, and local programs), the timing and amount of that capital available remains unclear.

While SG is certainly being cautious in this environment given the continued uncertainty around COVID-19’s impact, we are actively deploying capital for the following credit profiles:

High Net Worth Entrepreneur (“PFS Loan”)

  • Characteristics: Asset rich, liquidity constrained entrepreneurs in need of short-term cash infusion or bridge loan where speed and certainty to close are required. We enable entrepreneurs to leverage the equity in their personal assets that traditional lenders will not consider or cannot close fast enough (SG is able to close within 1 – 2 weeks).
  • Structure: Flexible security positions around financing situation, cash flow, and available collateral.
  • Recent Example: Real estate developer required capital to paydown a margin line and to fund operating expenses. SG proposed a $5MM loan secured by a 2nd lien on marketable secuirities (behind margin line) and a second deed of trust on a specific property.

Software/Recurring Revenue

  • Characteristics: Need to extend runway due to delayed M&A / capital raise activity or seeking non-dilutive growth capital. Typically too small for tech banks / venture debt funds and/or no big name VCs involved. $4MM or greater annual recurring revenue (ARR) and strong retention rates.
  • Structure: 1st Lien or 2nd Lien
  • Recent Example: $6MM ARR SaaS company’s planned Series B raise in the summer is going to be delayed due to the current environment. SG proposed a $2MM 1st lien facility to extend the Company’s runway 12+ months.

Senior Secured (Collateral Based and/or Cash Flow)

  • Characteristics: Company does not qualify for conventional financing or didn’t previously need outside financing. Traditional financing options (bank, ABL, factoring, cash flow / unitranche) not a viable option for the company due to insufficient availability from traditional collateral advance rates, nature of assets, billing cycle, and/or lack of speed & flexibility to close the transaction.
  • Structure: 1st Lien
  • Recent Example: Company with $6MM of TTM EBITDA and $3MM of accounts receivable needed $9MM to complete a shareholder buyout. SG proposed a $9MM 1st lien facility structured around accounts receivable and cash flow.