SBIC/mezz lenders are under-rated for their strong alignment with independent sponsors.
Typically they’ll be your senior lender (70-90% of their total check) and a meaningful equity investor (10-30%). 2-3x EBITDA in leverage (lower end of range for new sponsors & platforms). The loan rate is 10-13%, and amortization is often deferred until a bullet at a 5yr maturity.
The SBIC lender is safely positioned at the top of the cap stack, so they have locked in the lowest risk plus a cash income at a good IRR. The equity serves to juice their IRR.
Conventional bank lenders only have downside, so they focus on covenants. However, SBIC/mezz partners highly value the equity upside, so they recognize and understand nuances of fluctuating performance. A bank will review quarterly reports, whereas an SBIC will be involved at the board level and, crucially, sit on the same side of the table as you.
