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By Optionality
··3 min read

6/12 | Bankability: Debt as a Growth Engine

Bankability
Bankability

To you, debt is scary. To a buyer, it's fuel.

For most entrepreneurs, debt is a scary word.
We tie it to risk, to bad years, to sleepless nights.

For a buyer, it's the exact opposite: debt is fuel.

Optionality Masterclass 6/12
Bankability: Debt as a Growth Engine

Here's why your "bankability" (your company's ability to safely carry debt) directly affects your sale price.

Most buyers buy you with borrowed money

A buyer rarely puts up 100% of the price in equity.
They finance a big chunk of the purchase with debt, repaid by your company's cash flow.

Here's what that looks like:

  • EBITDA: $1M

  • Healthy debt capacity: roughly $2.5M to $3M

  • The rest: the buyer's down payment, a vendor take-back, an earn-out, etc.

If your business can carry that debt without choking, the buyer needs less capital to close.

The result: more buyers can afford your company.
And more buyers means more competition, which means a better price.

A business that's hard to finance is the reverse.
The buyer pool shrinks, and your negotiating power with it.

What makes a company "bankable"?

Your buyer's banker looks at the same things the buyer does:

  • Stable, predictable cash flow (recurring revenue and bankers love each other)

  • Clean, up-to-date financials

  • Low dependence on the owner or a single client

  • Reasonable capex needs

You'll notice something: these are the exact same factors that push your multiple up.
Bankability isn't a separate topic from value.
It's the same thing, seen through the lender's eyes.

A quick but important detour: debt doesn't automatically lower your value.

Two companies, same $1M EBITDA.

  • Company A: $500K of debt

  • Company B: $1M of debt

At 5x EBITDA, they're worth the same: $5M in enterprise value.
What changes is the equity value that comes back to you, once the debt is repaid.

So the real question isn't "How much debt do I have?"
It's rather "Is this debt creating value?"

That's exactly what investment funds and consolidators do, every single day.

Debt is also a lever for you, before the sale

A bankable company can borrow to grow: acquire a competitor, invest in equipment, make a strategic hire, open a new market.

And as we saw in the last article: at 5x EBITDA, every extra $100K of EBITDA that growth generates can be worth $500K more at exit.

Building your borrowing capacity isn't about taking on debt for its own sake.
It's about creating optionality: grow now, or sell for more later.
Ideally both.

Simon's Tip:

Debt is neither good nor bad. It's a tool. Investment funds use it to buy your company. Nothing stops you from using it first, to make that company bigger and more valuable.

Your homework for this week:

  1. Calculate your current net debt / EBITDA ratio
    (it's a feature of our platform).

  2. Then ask yourself: if a buyer wanted to finance 2.5x your EBITDA in debt tomorrow morning, could your business absorb the payments without putting operations at risk?

  3. If the answer is no, you've just identified a direct drag on your sale price, and a concrete opportunity to fix it.

Next article → We switch modules and start aligning the market, the business, and the human.