Private Capital vs Traditional Funding: Choosing the Right Capital Structure

The cheapest capital is not always the right capital. For growing businesses, acquisitions and complex transactions, capital structure can materially influence both risk and long-term value.

Companies have more capital options available today than simply borrowing from a bank or issuing ordinary equity.

Traditional bank debt remains highly relevant, but private credit, family office capital, private equity, preferred equity and structured capital have significantly expanded the options available to businesses.

The challenge is determining which form of capital best aligns with the company’s objectives.

Debt preserves ownership, but creates obligations

Debt can allow existing shareholders to retain ownership while accessing capital for growth, acquisitions or refinancing.

However, debt introduces:

• interest obligations
• repayment requirements
• covenants
• security
• refinancing risk

The amount of debt a business can prudently support depends on cash flow, asset backing, volatility and the purpose of the capital.

Equity provides flexibility, but changes ownership

Equity does not generally require scheduled repayment and can provide substantial growth capital.

However, issuing equity means sharing future value and potentially control.

The relevant question is therefore not simply whether equity is more expensive than debt.

It is whether the strategic value created by the equity capital outweighs the dilution.

Private capital creates a middle ground

Increasingly, transactions use structures sitting between conventional senior debt and ordinary equity.

These can include:

• private credit
• subordinated debt
• mezzanine finance
• preferred equity
• convertible instruments
• structured equity
• minority strategic investment

These structures can provide greater flexibility, but their economics and documentation can also be more complex.

Capital should follow strategy

A company should ideally determine its strategic objective before deciding how to finance it.

Is the capital being raised to:

• acquire another business?
• fund expansion?
• refinance existing debt?
• provide shareholder liquidity?
• recapitalise the balance sheet?
• enter a new market?
• undertake a strategic transaction?

Different objectives may require fundamentally different capital structures.

Advisory and execution should connect

Capital strategy cannot exist in isolation from execution.

Once the appropriate structure has been determined, the business still needs to identify capital providers, negotiate commercial terms, complete due diligence and execute the transaction.

This is where Global Path’s integrated model becomes relevant.

Global Path Corporate Advisory can advise on strategic and capital considerations, while Global Path Finance can separately provide, structure, arrange or source commercial capital where appropriate.

The objective is not simply to raise capital. It is to secure the right capital for the strategy.

Discuss a strategic or capital requirement with Global Path Corporate Advisory.