Build a capital stack the business can carry

What it means

The capital stack is the combination of funding claims used to acquire and own a business. In the recurring source model, bank borrowing covers part of the purchase, seller deferral covers another part and equity fills the remaining requirement. Each component has a different role and different expectations about repayment, participation and risk. Watch source

Leverage describes the use of borrowing alongside equity. The source often discusses debt relative to annual earnings, but also shows why the repayment calendar matters. Two structures with similar debt totals can create different cash pressure if one repays principal much faster. Watch source

Why it matters

A stack can balance the price without making the business resilient. Sellers, lenders and equity investors may all expect payments or protections that interact. The collection’s worked debt-service example is especially useful because it follows the funding diagram into annual payments. The initial arrangement is only the start of the ownership economics. Watch source

Nor does a low leverage multiple guarantee a lender will approve. Sey reports repeated refusals during a refinancing attempt despite seeking less than two times earnings. That is a personal account, not a market survey, but it challenges the idea that a multiple creates an entitlement to borrowing. Watch source

How it works

Begin with uses of funds: agreed completion payments and the additional transaction cash requirements you have identified. Then match them to actual funding sources and distinguish confirmed amounts from indications. The source’s closing account shows why lender legal fees deducted from proceeds can leave a gap even when the headline facility appears sufficient. Watch source

Build a second schedule for the period after completion. Include bank interest and principal, seller installments and the operating needs that remain outside a simplified earnings calculation. Then identify who bears losses if the case underperforms. Equity participation may need to change to attract someone willing to supply the missing risk capital. Watch source Watch source

Practical interpretation

Ask three separate questions of every component: how much usable cash does it provide, what does it demand later, and what conditions must be satisfied? This editorial review tool follows the source’s distinction between indicative financing and actual completion funds. A friendly lender conversation answers none of those questions conclusively. Watch source Watch source

For larger transactions, the provider’s place in the stack also matters. Senior debt seeks first repayment and negotiated security. A mezzanine lender accepts a junior claim, may allow some interest to accrue, and may seek equity-linked upside. A unitranche can instead combine risk in one borrower-facing facility. These products are explained in Fund Launch’s lender guides; they are not hidden components of Sey’s £3.5m illustration. Read the direct-lending guide Read the mezzanine guide

Keep sequence flexible. Deal-first, debt-next and equity-last is a recurring approach, but Stanley reports equity preceding debt. A separate all-equity platform proposal would buy first and seek refinancing later. That latter proposal remains a plan; it is not a demonstrated shortcut to reliable acquisition funding. Watch source Watch source

A worked example

Source illustration. A £3.5m purchase is represented by £2m bank borrowing, £1m seller deferral and £0.5m equity. Those sources sum to the headline consideration. In this version, £2.5m is available from bank and equity for immediate payment, while £1m is scheduled later. The example does not provide a complete fee budget or loan agreement. Watch source

Now ask what happens if usable bank proceeds are lower after fees. The arithmetic gap must be resolved with identified cash, changed terms or a different structure. The source’s separate completion account shows that adding fresh money can itself introduce further checks. Watch source

Common mistakes

Do not add the speaker’s alternative percentage ranges together as though they form one fixed recipe. Do not call deferred price equity merely because it reduces the initial cheque. And do not assume the sponsor’s small cash contribution eliminates anyone’s risk; obligations remain with the parties and entities that agreed to them. Watch source Watch source

Bank debt, seller financing and investor equity describe the core illustration. Direct lending and mezzanine describe additional institutional structures. Debt service tests the combined cash burden.

Further viewing

Study the simple funding illustration alongside the repayment and completion-fee accounts. Together they distinguish a balanced headline stack from a fully funded, supportable transaction.