Solution for long working capital cycle

August 01, 2025

by a searcher from University of Illinois at Urbana-Champaign in Austin, TX, USA

I have a healthcare business that is ramping up at a steady 10% per year revenue and booked $4mm in EBITDA in###-###-#### We have signed an LOI at a 4.5x multiple. The business has highly credit worthy customers and takes 9-18 months to get paid which is typical for this niche. Because of the growth, under its current cost structure, it only has been realizing about half of its paper EBITDA as cash flow while A/R balloons. The business could optimally service debt if it slowed its growth curve, but the right go forward plan really calls for rapid growth targeting multiple expansion upon exit. Does anybody have experience with this sort of situation? I feel like this is a perfect situation for an interest only note. Can anybody recommend debt providers that would be interested in this sort of structure?

Reply by an intermediary
from The University of Chicago in Chicago, IL, USA

I modeled the scenario for 10 minutes in a tool I use. You can pull off with A/R financing, 10-yr term debt and >10% Equity. I had to assume Sales, % EBITDA margin and few other things. Happy to do Zoom. How is the seller currently surviving? I did one transaction where the customers had a financing company that paid in 10 days (the financing firm does not call them a factoring firm). My client's price to its customers reflected such financing cost. Actually, the customer demanded that my client work with such financing firm. The healthcare customers basically outsource their A/P department.

Reply by a searcher
from Columbia University in Fairfax, VA, USA

Any reason you're not considering A/R financing? If the receivables are with large insurers, hospital systems, or government payors, there are healthcare-specific lenders (e.g., eCapital) that will advance against them. A/R lines are often structured as revolvers and can be layered behind term loans. Depending on how they’re structured, they can sometimes be excluded from senior leverage tests. I’ve seen this structure used successfully in several LMM healthcare deals - feel free to shoot me a DM, happy to chat.

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