Hey all,

In a deal with conventional debt, there are often distribution limits or excess cash flow recapture provisions - essentially forcing the business to pay down senior debt first with any excess cash flow.

In SBA deals which are covenant-light, you may only need to satisfy a DSCR requirement. Above which you are free to pay the capital stack in reverse order, from most expensive to least (likely paying back preferred equity first). And this assumption can make a huge difference in modeled IRR - do preferred investors start getting their capital back in year 1-2 or do they only collect a coupon until exit?

Curious if anyone has worked through this question and can share any market insights. Thanks!