Private credit provides stability for growing companies because money does not move when the business grows. A board deck is tidy, but the ground is chaotic. Buying stock three months before the customer pays, building a second warehouse that costs money for a year before making a penny, hiring two quarters ahead of revenue. The ratios wobble, and a bank facility that is usually floating rate and repayable on demand twitches at just the right time.
Third Eye Capital describes its clients as underserved or overlooked by the general market, and that description includes more businesses than owners realise. Several hundred portfolio companies have benefited from this company’s investment, including software, construction, and healthcare. The work has covered both periods of extreme distress and moments of extraordinary change. Growth lands in the second group far more often than most management teams anticipate when they first go looking for money.
Why not use banks?
Banks have trouble with growing companies for reasons that have nothing to do with the loan officer and everything to do with how credit decisions get made. The committee looks backwards, at trailing cash flow and last year’s margins. A growing company’s best case is always about the next eighteen months. The faster it grows, the uglier the rear view gets, because the cost of expansion shows up in the accounts long before the sales do. A bank line is also sized against the business as it stood at the last review, so a company that has doubled its order book finds the line too small within a year and the bank in no hurry to fix that.
A private lender begins with the assets and the plan instead. Receivables, stock, equipment and signed contracts all expand as the company expands, so a facility secured against them can expand too. Growing firms end up here because of this mechanical reason. Lenders who have seen this happen many times do not confuse the cash strain of growth with the cash strain of going under, which affects their behaviour when a quarter is short.
Features that hold
The parts of a private facility that a growing company actually leans on are specific, and they repeat from one borrower to the next.
- Capacity that follows the assets. As receivables and inventory build, the available borrowing builds alongside them, so management is not back at the bank every six months pleading for an increase.
- A fixed term and no demand clause. The money is there for the agreed period, which means the company can sign a lease or a supplier contract without wondering what mood the lender will be in next spring.
- Covenants drafted around the real plan. A growth business shows rising costs before rising revenue, and a covenant that ignores this will be breached right on schedule.
- Someone with operating experience across the table. When numbers disappoint, the conversation is about what to adjust rather than how to get out.
The firm exited an energy management platform in 2023 after it had grown greatly during its involvement. Once the company reached the point where it no longer needed that type of capital, it sold both its senior debt and equity; for a growing business, this is the shape to look for. The private lender carries the company through the stretch when growth is most expensive, and the balance sheet looks worst, then steps aside once the business has become something that can borrow on ordinary terms.
