How Does Mid-Market Cash-Flow Lending Work in Australia?
Business Loans
EBITDA · Covenants · Unitranche
Once a business is large enough, some lenders stop asking what property it owns and start asking what it earns. This guide explains who qualifies, how debt is sized against adjusted EBITDA, what security is taken over the business, how covenants and headroom work, whether directors still guarantee the loan, how private credit can fund an acquisition, how pricing and tenor are structured, what to prepare, and what happens from first enquiry to settlement.
Quick Answer
Mid-market cash-flow lending is a term loan sized on an established business's adjusted, recurring earnings rather than on property. The lender, usually a non-bank or private credit fund, takes first-ranking security over the business, may still require guarantees, and tests leverage, interest cover and reporting throughout the facility.
Also called: EBITDA-based lending, enterprise-value lending, private-credit business lending, mid-market direct lending. Unitranche is one structure within this market, not another name for every cash-flow loan. The short unsecured 'cash flow loan' sold online to small businesses is a different product.
What is mid-market cash-flow lending, and how is it different from property-secured and unsecured business loans?
Mid-market cash-flow lending is term debt sized on the earnings of an established business, secured over the business itself rather than over real estate, and monitored through covenants and regular reporting for the life of the loan.
Picture two businesses with the same earnings. One owns its warehouse and the directors' homes are unencumbered; the other leases everything. A bank will usually lend to the first against the property. A cash-flow lender can lend to both, because it is relying on what the business earns, not on what it can sell. That is why it matters: the Reserve Bank notes that private credit firms are more active in larger business lending, and separately reports that small businesses name having to provide residential property or other physical assets as collateral as a key challenge to accessing finance.
The lenders on this line are mostly a non-bank lender or private credit fund rather than a bank. Estimates of the market's size vary with what is measured: EY-Parthenon's survey puts Australian private credit at A$234.5 billion in 2025, and the RBA cites an industry estimate of $224 billion in assets under management at late 2025 against its own estimate of around $50 billion in credit outstanding at December 2025. The RBA's October 2026 Financial Stability Review says even the largest estimates put private credit at around 10 per cent of total business debt, and that private credit funds typically lend to larger and mid-sized businesses and to commercial real estate projects.
This is not the same thing as the small cash flow loans sold online to small businesses, which are short, unsecured and priced off recent bank account turnover. For how cash-flow lending sits among every other kind of business finance, see our complete guide to business loans, and for what an unsecured lender can still reach, what unsecured lenders can take. A lender reads your cashflow differently in each of the rows below.
| Loan type | What the lender relies on | Security taken | Reporting after settlement | Who it suits |
|---|---|---|---|---|
| Property-secured bank business loan | The value of the property, then the ability to repay | A registered mortgage over property, often including the directors' homes, plus guarantees | Annual accounts, sometimes a periodic review | Businesses with property to offer |
| Small unsecured online "cash flow loan" | Recent bank account turnover | No registered security over property; a personal guarantee is common | Little beyond the repayments | Small businesses needing a short top-up |
| Invoice or asset-based finance | The value of specific assets, such as invoices or equipment | The financed invoices or assets | Regular invoice or asset reporting | Businesses with a strong debtor book or valuable equipment |
| Mid-market senior secured cash-flow loan | Adjusted, recurring earnings and the cash left to service the debt | First-ranking security over the business, usually a general security agreement | Monthly or quarterly accounts and a periodic compliance certificate | Established, earning businesses without property to offer |
| Unitranche | Earnings, with senior and subordinated risk blended into one loan | First-ranking security over the business | Monthly or quarterly, against one set of covenants | Acquisitions and refinances wanting one lender and one set of documents |
| Mezzanine or subordinated | Earnings and enterprise value left after senior debt is repaid | Security ranking behind the senior lender | Usually mirrors the senior lender's reporting | Businesses needing more debt than a senior lender will provide |
Sources: Reserve Bank of Australia, Bulletin February 2026, "Recent Changes in Credit Markets and Their Implications for Monetary Policy", p. 19, published February 2026; Reserve Bank of Australia, Small Business Economic and Financial Conditions, published 23 October 2025; ASIC, Report 814, p. 18, quoting Moody's, published 22 September 2025; Reserve Bank of Australia, Financial Stability Review October 2026, chapter 3 and Box: Private credit in Australia, published 1 October 2026; EY-Parthenon, Annual Australian Private Debt Market Overview, March 2026. All read 2 October 2026. Cells are descriptive, not lender terms.
| Question | Bank business lending | Private-credit cash-flow lending | Why it matters | What to check |
|---|---|---|---|---|
| What drives the loan size? | Serviceability plus bank policy, often with property or other hard-asset support. | Adjusted recurring EBITDA, cash conversion and downside debt-service capacity. | An asset-light business can have debt capacity even without property. | Which EBITDA adjustments the lender accepts. |
| What security is taken? | Often mortgages over property plus company and director guarantees. | Usually a first-ranking general security interest over the business, group guarantees and sometimes director guarantees. | Removing a home mortgage does not necessarily remove personal exposure. | PPSR registrations, guarantors and any permitted security for other lenders. |
| How flexible is the structure? | Usually more standardised and lower cost when the deal fits policy. | More negotiated around leverage, acquisitions, amortisation, PIK, covenants and intercreditor terms. | Flexibility can solve a transaction a bank will not structure. | All-in cost and restrictions, not just the headline margin. |
| How much reporting follows settlement? | Often annual accounts plus periodic reviews, depending on risk. | Commonly monthly or quarterly accounts, compliance certificates and covenant testing. | The borrower trades property dependence for closer financial scrutiny. | Frequency, definitions, deadlines and cure rights. |
| Where is each strongest? | Lower-cost, standard credits with conventional security and time for bank process. | Acquisitions, refinances, growth capital and more complex mid-market structures needing negotiated terms or execution certainty. | The cheapest loan and the most workable loan are not always the same. | Run both structures where the business could qualify for either. |
Sources: A&O Shearman, Australian leveraged finance in 2025, 22 December 2025; Chambers and Partners, Acquisition Finance 2026 - Australia, updated May 2026. The table is a borrower-level comparison, not a statement that every bank or private-credit lender follows the same policy.
An established distributor's bank debt is secured over the directors' homes. It refinances to a cash-flow lender, which sizes the facility on the business's earnings, takes a general security agreement over the company instead of the homes, and asks for monthly management accounts in return. The directors may still be asked to sign guarantees; what a guarantee means once the mortgage is gone is covered below.
Illustrative. Not a statement about any particular lender.
Which businesses qualify for a mid-market cash-flow loan?
Mid-market cash-flow lenders look for established businesses with recurring earnings, reliable reporting, a clear use of funds and enough management depth for the business to keep performing without everything depending on one owner. There is no single Australian minimum EBITDA or facility size across the market, so the practical question is whether the business fits a lender's current mandate.
In practice, lenders focus on:
- Recurring earnings, supported by more than one strong year or quarter.
- Cash conversion, because accounting EBITDA still has to turn into cash that can pay interest and principal.
- Customer and supplier concentration, because one lost contract can change leverage quickly.
- Reporting quality, usually current monthly or quarterly management accounts that reconcile to the bank.
- Management depth, so the business is not dependent on one person for sales, delivery and finance.
- A clear use of funds, such as acquisition finance, growth capital, a shareholder exit or refinancing.
- A workable downside case, not just a base forecast that only passes if everything goes right.
If the business sits inside a group of companies, the lender will normally assess the group as a whole. See how lenders assess group structures. If your trading history is short, see what lenders use instead of two years of financials.
Am I big enough for mid-market private credit?
There is no market-wide cut-off. Published Australian lender mandates overlap: one lender publishes facilities from $1 million to $20 million, another targets loan sizes of typically $10 million to $50 million, and most mid-market lenders publish no size floor at all. Those are lender examples, not a universal definition of "mid-market".
| Lender | Published facility range | Security basis | Interest options | Stated timing | Takes adviser enquiries |
|---|---|---|---|---|---|
| Lender A | $1m to $20m, up to $40m subject to its funding partners | Cash flow and/or asset backed | Cash paid monthly or quarterly, or capitalised | Funding typically within 3 to 6 weeks | Yes, borrowers and their advisors are invited to enquire |
| Lender B | Target loan sizes typically $10m to $50m | Not stated | Not stated | Not stated | Not stated |
| Most mid-market lenders | Not published | Not published | Not published | Not published | Not published |
Sources: each lender's published borrower page, read 2 October 2026. Lenders are not named. Published ranges change with each lender's funding; this is not an offer from any lender.
Why do some lenders exclude property, mining or highly cyclical businesses?
Cash-flow lending works best where recurring operating earnings can be forecast and stress-tested. Property development, direct mining and highly cyclical businesses can be harder to underwrite on that basis because repayment may depend more on an asset sale, commodity price, project milestone or valuation than on repeatable operating cash flow. Some lenders therefore exclude those sectors or finance them under a different mandate. It is a lender-policy issue, not a universal rule.
How much can a business borrow against its EBITDA?
A business can borrow a multiple of the EBITDA the lender is prepared to accept after adjustments, but there is no single Australian debt-to-EBITDA multiple that applies to every borrower. The lender first normalises the earnings, then tests leverage, interest cover, debt service, cash conversion and a downside forecast.
Debt to EBITDA is total debt divided by adjusted EBITDA. If total debt is $12 million and lender-adjusted EBITDA is $4 million, leverage is 3.0 times. That is arithmetic, not a lending limit.
The important word is adjusted. A lender may remove unsupported add-backs, reset owner wages to a commercial level, normalise related-party rent, strip out genuine one-off items and challenge synergies that have not yet been delivered. For acquisition finance, the lender can also distinguish the seller's stated EBITDA from the EBITDA it is willing to underwrite.
What leverage multiples appear in the Australian market?
Published Australian acquisition-finance commentary gives context, not a universal borrower rule. Chambers' 2026 guide describes stretch senior leverage around 4.0 to 5.0 times EBITDA, unitranche around 4.5 to 6.0 times and larger institutional TLB structures around 5.0 to 6.5 times or more. Those are sponsor-backed leveraged-finance observations, not a policy range for an owner-managed company.
For founder-owned and smaller mid-market businesses, the lender may size below those figures after allowing for customer concentration, capex, tax, working-capital swings, sector volatility and the quality of the forecast.
Sources: Chambers and Partners, Acquisition Finance 2026 - Australia, Trends and Developments chapter (Gilbert + Tobin), updated 19 May 2026. Read 2 October 2026.
A seller presents adjusted EBITDA of $4.0 million. During underwriting, the lender rejects $300,000 of unsupported one-off costs, $200,000 of forecast synergies and $100,000 of owner-wage adjustments. The lender's EBITDA becomes $3.4 million. At an illustrative 3.0 times leverage, $4.0 million EBITDA implies $12.0 million of debt, while $3.4 million implies $10.2 million. The $1.8 million difference has to be filled with more equity, vendor finance, junior debt or a lower purchase price.
The 3.0 times multiple is illustrative arithmetic only. Actual leverage depends on lender policy, structure and the quality of the business.
How add-backs are argued and evidenced is covered in which trading figures a lender will accept. If the loan is to buy a business, see how a loan to buy a business works.
What is unitranche debt, and how does it compare with senior secured and stretch senior loans?
Unitranche is a single term loan that blends senior and subordinated risk into one facility, usually with one set of documents and covenants. Senior secured debt is the lower-risk first-ranking layer. Stretch senior stays first-ranking but lends further against the same earnings. Mezzanine or subordinated debt sits behind senior debt and costs more because it is repaid later if things go wrong.
| Structure | Ranking | How it is sized | Covenant intensity | Cost relative to senior | Common use |
|---|---|---|---|---|---|
| Senior secured | First ranking | More conservatively against adjusted earnings | Full financial covenants and reporting are common | Base case | Refinance, growth and term debt |
| Stretch senior | First ranking | Further than plain senior against the same earnings | Maintenance covenants are common in the mid-market | Higher | When plain senior falls short |
| Unitranche | Usually first-ranking term debt, with blended risk | Further than plain senior by blending senior and junior risk | One covenant package; maintenance or springing structures exist | Higher blended return | Acquisitions, buy-outs and refinances |
| Mezzanine / subordinated | Behind senior | On earnings and enterprise value remaining after senior debt | Usually sits behind the senior covenant package | Highest of the four | Filling a gap between senior debt and equity |
Sources: ASIC, Report 814, p. 18; AIMA and ACC, Private Credit Introductory Guide, Australia, 2nd edition; Chambers and Partners, Acquisition Finance 2026 - Australia. Read 2 October 2026.
Can private credit fund a business acquisition?
Yes. Acquisition finance is one of the main uses of mid-market private credit. The lender normally underwrites the combined business after settlement, adjusts both the buyer's and target's EBITDA, tests pro-forma leverage and interest cover, and then decides how much debt the combined cash flow can support.
The questions that usually decide the structure are whether the target's earnings are recurring, which add-backs and synergies the lender accepts, how much purchase-price equity the buyer contributes, whether the seller leaves vendor finance behind, how much working capital the combined business needs, and how quickly integration risk falls away.
What does a quality of earnings review do in acquisition finance?
A quality of earnings review tests whether the profit used to size the loan is recurring and supported by the records. It typically reconciles management accounts to bank activity, tests one-off adjustments, examines revenue and gross-margin quality, looks at working-capital movements and challenges add-backs or synergies that are not well evidenced. The borrower normally bears the due-diligence cost under the transaction documents, but who instructs the review and whether the lender relies on it depends on the deal.
A QoE report does not automatically create more borrowing capacity. Its value is that it reduces uncertainty about the earnings base. If it cuts the EBITDA the lender accepts, the loan size can fall with it.
Does a cash-flow term loan also cover working capital?
Not always. An acquisition or refinance may use a term loan for the long-dated debt and a separate revolving facility for seasonal working capital, drawings and contingent instruments such as bank guarantees. Chambers' 2026 Australian acquisition-finance guide says unitranche structures are commonly accompanied by a super-senior revolving facility that ranks ahead of the term debt on enforcement.
This matters because a deal that uses all available debt capacity for the purchase price can leave the business short of liquidity after settlement. The working-capital requirement should be modelled before the acquisition debt is finalised.
Where does mezzanine debt sit in the capital stack?
Mezzanine sits behind senior debt and costs more because it is repaid after the senior lender. It is used when a business needs more debt than the senior lender will provide and the owners do not want to fill the entire gap with equity. See our mezzanine finance guide and subordinating working capital without repricing senior debt.
What covenants and reporting come with a cash-flow loan?
Expect financial covenants, usually leverage and interest or debt-service cover, plus regular reporting and restrictions on decisions that could materially change the lender's risk. The lender is relying on the business rather than a house, so it monitors the business throughout the loan.
- Financial covenants: maximum leverage and minimum interest-cover or debt-service-cover tests.
- Reporting undertakings: monthly or quarterly management accounts, annual accounts, budgets and compliance certificates.
- General undertakings: limits on further debt, new security, asset sales, distributions and changes of control.
Large sponsor-backed transactions can be looser, but middle-market cash-flow facilities are commonly actively covenanted. Chambers' 2026 Australian acquisition-finance commentary says net leverage is the standard covenant across stretch senior, unitranche and TLB structures, while some unitranche and TLB deals use springing tests. That is institutional market context, not a promise that a founder-owned borrower will receive covenant-lite terms.
What is the difference between a maintenance covenant and an incurrence covenant?
A maintenance covenant is tested periodically whether or not the borrower takes any new action. An incurrence covenant is tested only when the borrower wants to do something specified in the documents, such as incur more debt, make a distribution or complete another acquisition. A springing covenant only becomes active when a trigger is met, commonly linked to drawings under a revolving facility in larger leveraged transactions.
What is covenant headroom, and how much should you leave?
Covenant headroom is the distance between expected performance and the point where the covenant is breached. The useful test is not whether the management budget passes. It is whether a realistic downside case still passes using the lender's EBITDA and debt definitions.
Assume the maximum leverage covenant is 4.0 times. Current leverage is 3.1 times, the base forecast is 3.5 times next quarter, and a realistic downside case is 4.2 times. The business is compliant today, but the downside case already breaches the covenant. That is covenant-headroom risk, and it is better negotiated before settlement than after EBITDA falls.
Illustrative only. Covenant definitions and test dates vary by facility.
What will I need lender consent for after settlement?
The facility agreement can require consent before the borrower takes on additional debt, grants new security, buys another business, sells a material asset, pays dividends above agreed limits, changes ownership or materially changes the business. Larger leveraged-finance documents can contain negotiated debt baskets and ratio-based permissions, but a founder-owned borrower should not assume those flexibilities exist unless they are written into the facility.
This is one reason to negotiate the next two or three years of likely business decisions before signing. A cheap loan can become restrictive if the borrower later has to ask for amendments to do things that were predictable at settlement.
What happens if you breach a loan covenant?
A covenant breach is usually an event of default even if every scheduled repayment has been made. Common outcomes are a waiver, covenant reset, repricing or amendment fee, an equity cure where the documents allow one, tighter reporting, restrictions on distributions or new debt, or, if the problem cannot be resolved, acceleration and enforcement.
EY-Parthenon's March 2026 review says private credit lenders often have an incentive to work through problems because they commonly hold loans rather than distribute them immediately, but a borrower should not rely on flexibility that is not documented. Read the default, cure and waiver provisions before signing. If a facility is approaching expiry or non-renewal, see what to do with 90 days to refinance.
For a plain-English foundation, see loan covenants explained.
Do you still need a personal guarantee on a cash-flow loan, and can the directors' homes come off?
Often, yes, a director guarantee is still requested even when the lender does not take a mortgage over the director's home. A personal guarantee and a property mortgage are different: removing the mortgage can release the home from the security package while leaving the director personally liable under the guarantee.
Whether the guarantee is capped, limited to particular obligations or released after a period of performance is negotiated facility by facility. Have a solicitor read the guarantee and the facility's enforcement provisions before signing.
Which rules protect you depends on who the lender is. A bank that subscribes to the Banking Code of Practice has made commitments to guarantors, from limits on the guarantee to the order in which it enforces, but a sole director is carved out of most of them, and a non-bank or private credit lender is not bound by the Code at all. The four routes that actually end a guarantee are set out in how to get released from a director's guarantee.
The home matters because it is usually what a troubled small business loan is repaid from. The Reserve Bank's October 2026 review notes that the collateral behind many small business loans is a family home, and that over half of banks' non-performing business loans were judged well secured in June 2026, meaning a sale of the collateral would repay them in full.
| Issue | Property mortgage | Personal guarantee |
|---|---|---|
| What is given to the lender? | Registered security over the property | A contractual promise to pay if the borrower does not |
| Does it appear on title? | Yes | No |
| Can the home be released while this remains? | No, until the mortgage is discharged | Yes, but personal exposure can remain |
| What should be negotiated? | Release conditions and discharge mechanics | Scope, cap, expiry and release triggers |
Sources: Reserve Bank of Australia, Financial Stability Review October 2026, section 3.1, published 1 October 2026; Australian Banking Association, Banking Code of Practice (2025 Code). Both read 2 October 2026. Descriptive only, not legal advice; what a mortgage or guarantee commits you to is set by the documents for each facility.
If there is no property mortgage, what security does the lender actually take?
No property mortgage does not mean unsecured. A cash-flow lender commonly takes a general security agreement over the borrowing company and registers the security interest on the Personal Property Securities Register. Depending on the group and transaction, the package can also include related-company guarantees, security from other group entities, share security, specific security over material assets and director guarantees.
A PPSR registration can cover personal property such as receivables, inventory, equipment and intangible property. Land itself sits outside the PPSR system. Priority matters because another financier may already hold security over some or all of the same assets, which can require releases, priority deeds or an intercreditor agreement.
Sources: Australian Government PPSR, Financial services and Protect your ideas and intangible assets, read 2 October 2026.
How do you refinance a bank loan to release the directors' homes?
The new cash-flow lender pays out the bank at settlement, the bank discharges the mortgages over the homes, and the new lender takes its agreed business security instead. It only works if every obligation tied to the old property security is dealt with, not just the main term loan.
- Get a complete payout figure. Include break costs and every facility secured by the same property.
- Identify cross-collateralised facilities. Overdrafts, bank guarantees, cards and equipment facilities can sit behind the same mortgage and may need to be repaid, replaced or separately secured.
- Check PPSR and other security releases. Existing bank security interests may need to be discharged or subordinated so the new lender receives the priority it approved.
- Read continuing or all-obligations guarantees. A zero balance on one facility does not necessarily release a guarantee covering other obligations to the bank.
- Make the releases settlement conditions. Have the solicitor confirm the property discharges, PPSR releases and any required guarantee releases occur as part of settlement.
- Register the new security. The incoming lender's GSA and other agreed security are put in place at settlement.
A refinance can discharge the bank mortgage over a director's home while the incoming lender registers first-ranking security over the operating company and takes group guarantees. The property is out of the security package, but the lender still has enforcement rights over the business assets and may retain recourse under a director guarantee.
Illustrative. Have your solicitor explain the security and guarantee releases before settlement.
For more detail, see family home security for a business loan, director guarantees and getting off cross-collateralisation.
How are mid-market cash-flow loans priced, and what fees do borrowers pay?
Mid-market private-credit loans are usually priced as a floating base rate plus a lender margin, with fees and any capitalised interest on top. The right comparison is the total cash and non-cash cost over the period you expect to hold the facility, not the headline margin alone.
The AIMA and ACC Australian guide notes that almost all private-credit corporate loans are floating rate. ASIC's Report 820 found borrower fees including origination, establishment, early-repayment, extension and default fees, and also showed that definitions of default and fee structures vary between funds.
How is the interest rate on a private-credit loan actually quoted?
The cash interest is commonly a benchmark such as BBSY or another agreed floating base rate plus a lender margin. A facility can also include a base-rate floor, PIK or capitalised interest and fees that are separate from the quoted margin. For context at the large end of the market, A&O Shearman's December 2025 review reports that recent Australian covenant-lite term loans for solid sponsor-backed credits priced with margins in the low 4s or below over benchmark, and that unitranche lenders charge a higher headline margin in return for certainty of funds and more flexible terms. Those are sponsor-deal observations, not a Switchboard rate card and not pricing an owner-managed borrower should expect.
What should you compare across two term sheets?
Compare the all-in cost, the downside protections and the exit mechanics together. A lower margin can be offset by heavier fees, tighter covenants, stronger call protection or a more expensive default regime.
| Item | When it costs or constrains you | What to check | Why it matters | Question to ask |
|---|---|---|---|---|
| Base rate + margin | Throughout the loan | Benchmark, reset frequency and any floor | The cash coupon moves as the benchmark moves | What happens if BBSY rises or falls? |
| PIK / capitalised interest | During the term | How much is added to principal and when cash pay resumes | Reduces current cash cost but increases debt outstanding | What will the balance be at maturity? |
| Establishment / origination fee | At signing or settlement | Percentage basis and whether refundable | Can materially change year-one cost | Is it charged on the limit or amount drawn? |
| Commitment / unused-line fee | While part of a facility is undrawn | Rate and undrawn base | You can pay for liquidity you have not used | Is there an unused-line charge? |
| Legal and due diligence | Before settlement and on amendments | Who pays lender legal, QoE and specialist costs | Can be payable even if the loan does not settle, depending on the signed terms | Which costs survive if I withdraw or credit declines? |
| Call protection / minimum interest | If you repay or refinance early | Minimum return, make-whole or stepped prepayment fee | Can make an early bank refinance expensive | What is the cost to exit in month 6, 12 or 18? |
| Cash sweep | When cash generation exceeds agreed thresholds | Percentage of excess cash or asset-sale proceeds that must repay debt | Speeds deleveraging but reduces cash retained by the business | What cash is swept and what is excluded? |
| Amendment / waiver fee | When covenants or terms need changing | Fee, repricing and additional conditions | A tight covenant can become expensive before an actual payment default | What does a routine waiver typically require? |
| Default margin and fees | After an event of default | Definition of default, extra margin and separate fees | The economics can change quickly once a default occurs | Which non-payment events trigger default pricing? |
| Maturity / bullet repayment | At the end of the term | Expected principal outstanding and refinance assumptions | A bullet can create refinance risk even if interest is always paid | How much principal is still due at maturity? |
Sources: ASIC, Report 820; AIMA and ACC, Private Credit Introductory Guide, Australia, 2nd edition; A&O Shearman, Australian leveraged finance in 2025. Read 2 October 2026. Terms vary by lender and facility.
How lenders differ on appetite and pricing approach is mapped in the non-bank lender policy matrix.
What is the process, and how long does a private credit cash-flow loan take?
A private-credit cash-flow loan usually takes weeks, not days. The lender has to understand the earnings, downside case, security and legal structure before it can fund. One lender publishes funding typically within 3 to 6 weeks; that is one lender's stated process, not a market-wide standard.
- First enquiry. Confirm the amount, purpose, timing, ownership and broad earnings profile.
- Information pack. Financial statements, current management accounts, forecast, debt schedule, ATO position, group chart and use of funds.
- Indicative terms. Size, pricing, structure, covenants, security and conditions are set out subject to due diligence and approval.
- Due diligence. Financial or quality-of-earnings work, legal due diligence and specialist reviews where needed.
- Credit committee. The lender gives formal approval or changes the proposed structure.
- Documents and conditions precedent. Facility, security and guarantee documents are negotiated and the settlement conditions are satisfied.
- Settlement. Existing debt is repaid where relevant, security is released and registered, and the new facility is drawn.
- Ongoing monitoring. Management accounts and compliance certificates continue for the life of the facility.
How long is a private-credit term loan, and is it interest-only or amortising?
There is no single tenor or repayment shape. A mid-market private-credit facility can amortise, partially amortise or leave a large bullet due at maturity. Chambers' 2026 Australian acquisition-finance guide says the market has shifted toward term loan B and unitranche structures with limited amortisation, often alongside a super-senior revolving facility.
Before signing, map how the principal is expected to leave the balance sheet: scheduled amortisation, free-cash-flow sweep, refinance to cheaper bank debt, sale of the business, equity injection or another agreed exit. A loan can be affordable month to month and still create a serious refinance problem at maturity.
What goes in the information pack for a cash-flow loan?
Expect recent financial statements, year-to-date management accounts reconciled to the bank, a twelve-month forecast, evidence for add-backs, aged debtors and creditors, an existing-debt schedule, ATO position, group chart and a clear use of funds. A current, reconciled pack gives the lender enough information to decide quickly whether the deal is inside mandate before expensive due diligence starts. Expect the tax position to be read closely: EY-Parthenon, summarising the Commissioner of Taxation's 2024-25 annual report, records a 136 per cent rise in director penalty notices issued and a 16 per cent rise in business tax debt that year (EY-Parthenon, March 2026). If a notice has already arrived, see the director penalty notice guide.
| Document | Why the lender asks for it | Who usually prepares it |
|---|---|---|
| Recent annual financial statements | Shows historical earnings and cash generation | Accountant |
| Current management accounts reconciled to the bank | Shows current trading and reporting reliability | Bookkeeper / accountant |
| Twelve-month forecast and assumptions | Tests debt service and future covenant compliance | Management / accountant |
| Add-back schedule with evidence | Supports the adjusted EBITDA used in sizing | Management / accountant |
| Aged debtors and creditors | Shows working-capital pressure and concentration | Bookkeeper |
| Existing debt schedule and statements | Shows what is refinanced and what security already exists | Borrower / broker |
| ATO account position | Shows tax debt and whether any payment arrangement exists | Accountant |
| Group chart | Shows who borrows, guarantees and earns the cash flow | Accountant / solicitor |
| Use of funds and acquisition documents where relevant | Shows what the money is for and how the transaction completes | Borrower / adviser |
Note: This is a descriptive checklist, not a lender's mandatory list.
What is a quality of earnings review, and how long does due diligence take?
A quality-of-earnings review checks that the EBITDA the lender is using is supported by the records and likely to repeat. It can reconcile accounts to bank activity, test add-backs, examine revenue concentration and working-capital movements and identify adjustments that change debt capacity. The depth of work depends on the borrower and transaction.
Due diligence can also include legal review, tax, industry analysis and specialist work. Timeframes extend when accounts are stale, add-backs are poorly evidenced, acquisition documents keep changing or the security and group structure are complicated.
From our broking, indicative
What gets a file read quickly is a current set of numbers a lender can reconcile, a clear use of funds and a structure that is understandable on the first pass. What stalls a file is stale reporting, unexplained add-backs, cross-collateralised security that has not been mapped and a deadline that assumes private-credit due diligence works like an online SME loan.
Basis: Switchboard files introduced to cash-flow and private-credit lenders, May to September 2026. As of October 2026. Not a quote, offer or approval likelihood.
Lender mandates, facility-size floors and due-diligence requirements change over time.
Where does a broker fit when lenders run no broker program?
A broker on a mid-market cash-flow loan works as your adviser: preparing the information pack, approaching lenders whose mandates fit, and running the process to settlement. Most mid-market cash-flow lenders do not run broker accreditation or commission programs, so any adviser's fee is agreed with you before work starts and set out in writing.
What an adviser does:
- Prepares the information pack: accounts, forecasts, the use of funds and the security available.
- Matches the request to lenders whose published or known mandates fit.
- Runs the term sheet, due diligence and documentation timetable.
What an adviser does not do:
- Guarantee an approval.
- Promise a rate, a loan size or a timeframe.
What happens when you contact Switchboard about a cash-flow loan?
The first conversation is about the numbers you already have: recent accounts, year-to-date trading, existing debt and what the money is for. From that, Nick will tell you whether the business looks like what cash-flow lenders fund, or whether another kind of loan fits better, before any fee is agreed. See how we approach business loans or start a conversation with Nick.
What protections apply when the lender is not a bank?
A loan to a company sits outside consumer credit law, and a lender that makes only commercial loans need not hold a credit licence or belong to AFCA, so check whether your lender is an AFCA member before you sign.
ASIC states that loans to companies are not subject to the credit legislation; the consumer test is whether credit is predominantly for personal, domestic or household purposes (ASIC Information Sheet 101, reissued 20 October 2020). ASIC also says lenders that only provide commercial loans are not required to have a credit licence and are not legally required to be AFCA members, and that if a lender is not a member you should seek private legal advice (ASIC, Disputes about commercial loans, updated 19 April 2024).
Even where the lender is an AFCA member, size matters: AFCA can hear a small business complaint only if the business has fewer than 100 employees, cannot hear it if the business is part of a group of 100 or more employees, and cannot consider a complaint about a small business credit facility over $6.3 million (for complaints lodged on or after 1 January 2024) (AFCA, Small business, read 2 October 2026). That limit applies whether the complainant is the borrower or a guarantor, and because small business lending sits outside the responsible lending rules, AFCA applies no unsuitability test to a small business loan. AFCA has also warned small businesses about lenders outside its membership: in 2024-25 it closed 2,063 small business finance complaints, 21 per cent of them because they fell outside its rules, a large share because the lender was not a member (AFCA media release, November 2025). A lender that is not a bank is not automatically outside AFCA, but you have to check.
The small business ombudsman has told Treasury it assists small businesses dealing with lenders outside AFCA on unclear interest, fees, charges and security (ASBFEO submission, 23 March 2026). At the system level, the Reserve Bank's October 2026 Financial Stability Review says non-bank lenders do not appear to have been taking meaningfully more risk as their funding eased, while noting that ASIC is addressing investor protection problems in parts of the private credit industry, including a June 2026 statement calling on funds to keep valuations timely and robust (RBA Financial Stability Review, October 2026, read 2 October 2026).
Do unfair contract terms protections reach a facility above $5 million?
Generally not. Unfair contract terms protections cover standard form small business contracts, including business loans, where a party employs fewer than 100 people or has turnover under $10 million, and, for financial products, only where the upfront price payable does not exceed $5 million. For a business loan, ASIC counts the amount borrowed plus any disclosed establishment fee toward that cap and disregards interest, and individually negotiated contracts are not covered at all (ASIC Information Sheet 211, page updated 17 August 2026, read 2 October 2026). Since 9 November 2023 unfair terms have been illegal, with each unfair term a separate contravention (ASIC, Unfair Contract Terms reforms commence). A Treasury review of those reforms, tabled on 29 June 2026, recommended infringement notice powers for ASIC and the ACCC, and the government has said it will introduce them (Treasury Ministers media release, 29 June 2026). Many mid-market facilities fall outside on size, and a negotiated facility may not be a standard form contract at all. Whether your documents are covered is a question for your solicitor. The full picture is in what protections a business loan carries, and what a lender can do on a breach in commercial loan covenant breaches.
When is cash-flow lending the wrong tool?
Cash-flow lending is the wrong tool when the business is small or young, when the need is short-term and property is available, or when earnings swing too much to hold a covenant.
Good fit
- Established and earning, with accounts to prove it
- Asset-light, without property to offer as security
- Needs term debt for growth, an acquisition or a refinance away from property security
Better elsewhere
- Small or young, or with earnings too volatile to hold a covenant: see our working capital loans guide
- Property-backed and short-term: private lending against property
- Funding goodwill in a small business purchase: who funds goodwill
- Investing rather than borrowing: if you want to invest in private credit instead
For an owner planning an exit, the succession and acquisition finance map shows where cash-flow debt fits. Not sure which side of the line you are on? See whether your business fits.
What does the borrower usually need next?
The next problem is usually not another definition of cash-flow lending. It is one of the transaction issues below. Use the path that matches what is actually happening in the business.
| What is happening? | The real question | What the lender will focus on | Main risk | Next resource |
|---|---|---|---|---|
| You want the family home off the business loan | Can the business stand on its own earnings and security? | Adjusted EBITDA, existing payout, group security and guarantees. | Mortgage removed but an uncapped guarantee remains. | Getting released from a director's guarantee |
| You are buying another company | What debt can the combined group support? | Pro-forma EBITDA, equity contribution, synergies, integration and working capital. | Borrowing against add-backs the combined business does not achieve. | Loan to buy a business |
| The lender has reduced your EBITDA | Which add-backs are real and recurring? | Quality of earnings and evidence for adjustments. | Debt capacity falls late in the process. | Trading figures lenders accept |
| You are close to a covenant | How much headroom remains and what can be cured? | Actual covenant definitions, forecast downside and cure/waiver rights. | An event of default before a missed repayment. | Commercial loan covenant breaches |
| The facility matures soon | Can it be refinanced before the maturity date? | Current EBITDA, leverage, lender appetite and clean information. | Leaving refinance work until the lender has all the time leverage. | 90 days to refinance |
| You received two private-credit term sheets | Which one is cheaper and safer over the actual hold period? | All-in economics, covenants, guarantees, exit fees and default terms. | Choosing the lower headline rate but the worse total package. | Have the structure reviewed against your situation |
Mid-market cash-flow lending trades property dependence for deeper underwriting and ongoing scrutiny. The lender sizes debt on adjusted recurring earnings, takes security over the business, tests leverage and coverage, and can structure senior, unitranche or subordinated debt for growth, acquisitions and refinances. A home mortgage may come off, but company security and personal guarantees can remain. The decision therefore turns on four things: sustainable EBITDA, covenant headroom, the full security and guarantee package, and the all-in cost and exit path over the expected term.
Key takeaway: if your business earns reliably but you do not want property on the line, cash-flow lending can work, provided you can live with the reporting and the covenants and you know what any guarantee commits you to.Frequently asked questions
In Australia it means two different things: small unsecured loans sold online to small businesses, priced off recent bank turnover, and mid-market term debt sized on an established business's earnings. This guide covers the second. For the first, see short-term cash flow loans for small businesses, and for the second, how mid-market cash-flow lending differs.
A mid-market cash flow loan is sized on the business's adjusted, recurring earnings, secured over the business rather than over property, and monitored through covenants and regular reporting for the life of the loan. See how a lender sizes the loan against EBITDA.
On a cash-flow loan the usual financial covenants are a maximum leverage ratio and a minimum interest cover or debt service cover ratio, plus reporting undertakings such as monthly or quarterly accounts and a compliance certificate. The level of each is set facility by facility. See the covenants and reporting that come with a cash-flow loan, or the glossary definition of a loan covenant.
Expect to be asked for one. A cash-flow lender takes security over the company but may still ask directors, and sometimes other group companies, to guarantee the loan. What the guarantee covers, whether it is capped and when it falls away are negotiated facility by facility. See whether you still need a personal guarantee.
It can be done if a cash-flow lender will refinance all of the bank debt secured on the house: the new lender pays out the bank at settlement, the bank discharges its mortgage, and the new lender takes security over the company instead. A personal guarantee may still be required, and any continuing or all-obligations guarantee the bank holds should be released in writing. See how to refinance to release the directors' homes.
Expect to provide recent financial statements, year-to-date management accounts reconciled to the bank, a twelve-month forecast, evidence for any add-backs, aged debtors and creditors, a schedule of existing debt, your ATO account position, a group chart and the use of funds. See what goes in the information pack.
A unitranche loan blends senior and subordinated risk into one loan, with one lender, one rate and one set of covenants, instead of separate senior and junior facilities. See how unitranche compares with senior and stretch senior debt.
Cash flow lending relies on the earnings and enterprise value of the business as a whole; asset-based lending relies on the liquidation value of specific assets, such as invoices, equipment or property. The comparison table in the first section of this guide sets them side by side, and what unsecured lenders can take covers loans with no specific asset behind them.
Private credit business lenders typically lend to established businesses with stable, recurring earnings, often too large for small-business products and looking for terms a bank will not offer. The Reserve Bank's October 2026 Financial Stability Review says private credit funds typically lend to larger and mid-sized businesses and to commercial real estate projects. See which businesses qualify.
Compare the floating base rate and lender margin together with establishment and commitment fees, legal and due-diligence costs, any PIK interest, prepayment or minimum-interest protection, amendment and waiver fees, default pricing, cash sweeps and the principal still due at maturity. See what to compare across term sheets.
There is no single acceptable debt-to-EBITDA ratio. Each lender sets its own level against the quality of the earnings, the sector and the structure of the loan, then holds the business to it as a covenant. See how lenders size a loan against EBITDA.
Yes. A private-credit lender can fund an acquisition by underwriting the combined business after settlement, adjusting the buyer and target EBITDA, testing pro-forma leverage and cash flow, and structuring senior, unitranche or subordinated debt around the equity contribution and working-capital needs. See how acquisition finance is sized.
Usually, yes. A cash-flow lender commonly takes a general security agreement over the borrowing company and registers the security interest on the PPSR. It may also take related-company guarantees, specific security and director guarantees. See what the security package can include.
There is no universal term. Ask for the maturity date and how much principal will still be owed then, because the repayment profile can be amortising, partially amortising or largely bullet depending on the borrower and transaction. See how tenor and repayment shape work.
Covenant headroom is the distance between expected performance and the point where the loan covenant is breached. A good review tests the lender's covenant definitions against a realistic downside case, not only the management budget. See how to think about covenant headroom.
A senior secured loan is first-ranking debt: it is repaid before any other debt and is secured over the business's assets. See what senior debt means and how it compares with unitranche.
For a borrower, the risks of direct lending are covenant pressure, tight reporting, enforcement over the whole business if things go wrong, and fewer statutory protections if the lender is not an AFCA member. See what protections apply when the lender is not a bank.
The downsides of debt financing are fixed obligations that fall due whatever the trading, covenants that constrain decisions, and security and guarantees that put the business, and sometimes the owners, on the line. See when cash-flow lending is the wrong tool, or check how your business would be assessed.
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