.avif)
Compare private credit, preferred equity and minority equity for $50M+ growth capital raises across the U.S. and Canada.
Once a company needs $50 million, $100 million or more to fund acquisitions, new facilities, geographic expansion or another major growth initiative, the financing decision becomes more important than simply finding a source willing to write the cheque.
Management has to decide which form of capital should absorb which risk.
Private credit preserves ownership but introduces fixed obligations. Preferred equity can reduce near-term debt service but creates negotiated investor economics. Minority common equity can provide permanent growth capital with no scheduled repayment, but existing shareholders give up part of the future enterprise value.
Quick Answer: Companies raising $50 million+ should compare private credit, preferred equity and minority equity based on cash-flow durability, acceptable leverage, ownership dilution and the expected return on the growth project. Strong companies often use a hybrid structure rather than forcing the entire capital requirement into debt or equity.
At this transaction size, the wrong capital can constrain the company for years.
Imagine a business wants $75 million to acquire competitors and expand capacity. Financing the entire amount with debt might preserve 100% of the shareholders' ownership, but it also creates substantial interest expense, maturity risk and lender covenants.
Raising the entire amount as common equity eliminates mandatory debt service, but shareholders could surrender a meaningful portion of a company that may be worth substantially more after the expansion succeeds.
The right question is therefore not:
“What capital can we raise?”
It is:
“Which risks should be funded with debt, and which risks require equity?”
For Canadian companies already considering acquisition-driven growth, Mehmi's guide to M&A financing for business acquisitions in Canada provides additional context on why large transactions are usually built from multiple financing layers rather than one facility.
Private credit generally refers to corporate loans originated outside traditional banks and public bond markets, often by private debt funds, institutional investors and other non-bank capital providers.
It has become a significant institutional financing channel.
The Federal Reserve reported that private credit represented approximately $1.4 trillion, or 10% of total U.S. nonfinancial corporate debt, based on data from the second half of 2025.
Canada's financing market is different. In August 2026, the Bank of Canada reported that loans from non-bank lenders to Canadian businesses had remained at roughly 15% over the previous decade, while banks and public debt markets continued to provide most external corporate financing.
That distinction matters when raising institutional capital across North America. The available lender universe, structures and competitive dynamics can differ substantially between a U.S. borrower and a Canadian borrower.
Private credit is strongest when the company has predictable cash flow but wants to avoid issuing significant new equity.
Consider an established manufacturer, distributor, logistics operator or business-services platform with recurring EBITDA and a clear expansion strategy.
Management may know that a new facility, acquisition program or geographic rollout can create significant enterprise value. Selling 20% of the company today could become extremely expensive if enterprise value doubles over the following five years.
Debt allows existing owners to retain that upside.
But private credit works only when the operating business can carry the resulting fixed obligations.
Credit providers will typically examine normalized EBITDA, free cash flow, working-capital requirements, customer concentration, capital expenditures, existing leverage, collateral, management performance and downside scenarios.
A company with substantial receivables and inventory may also be able to separate its operating liquidity from its growth debt through asset-based financing. Canadian borrowers can review Mehmi's Asset-Based Lending Canada guide and its more detailed ABL borrowing-base guide for the mechanics of collateral-based availability.
The key principle is simple: do not consume long-term growth debt capacity financing ordinary working-capital fluctuations if a revolving facility can handle that job more efficiently.
The biggest drawback is not necessarily the interest rate.
It is the fixed nature of the obligation.
Interest continues to accrue if an expansion takes longer than expected. The maturity remains even if the acquisition market weakens. Financial covenants may tighten exactly when management wants greater flexibility.
Private credit agreements can also include restrictions on additional indebtedness, acquisitions, shareholder distributions, asset sales and other corporate actions.
Depending on the transaction, security may cover accounts receivable, inventory, equipment, shares of subsidiaries or substantially all business assets.
In Canada, security over personal property is generally registered through provincial PPSA systems, while Quebec has its own civil-law framework. Ontario, for example, explains that PPSA registrations help establish priorities between creditors with competing interests in the same personal property.
Canadian companies comparing collateral-backed debt against cash-flow lending can also review Mehmi's secured versus unsecured business financing guide.
The company should therefore evaluate the entire credit agreement, not just the coupon.
Preferred equity sits between traditional debt and common equity economically.
The investor contributes equity capital, but receives negotiated rights that rank ahead of common shareholders in certain respects.
A preferred investment might include a preferred return, liquidation preference, redemption rights, conversion rights, board representation, consent rights or participation in future enterprise value.
The exact structure is negotiable.
That is what makes preferred equity useful for companies that need substantial growth capital but cannot safely support another $50 million or $100 million of senior debt.
Preferred equity can potentially preserve cash because returns may be accrued rather than paid currently, depending on the negotiated structure.
But deferred cash cost does not mean free capital.
An accrued preferred return can compound into a significant future obligation.
Preferred equity becomes more attractive when the growth investment needs several years before producing full cash flow.
Consider a company developing new production facilities, pursuing a multi-year acquisition strategy or expanding into several markets simultaneously.
A conventional lender may require interest and principal before those investments are fully productive.
A preferred investor may be willing to structure the investment around a longer realization period because the investor expects a higher overall return.
For Canadian companies expanding geographically, Mehmi's discussion of financing expansion into new provinces illustrates why permanent growth expenditures should be separated from ordinary operating liquidity.
Preferred equity can also help management avoid overleveraging the company simply to avoid common-equity dilution.
The tradeoff is that the preferred investor may negotiate substantial downside protection and influence over major corporate decisions.
Minority common equity is the cleanest form of risk capital among the three structures.
The investor purchases an ownership position without acquiring control of the company.
There is generally no contractual requirement for the company to repay the original investment on a monthly or quarterly schedule.
That makes minority equity particularly useful for companies with strong growth prospects but unpredictable near-term cash generation.
BDC Capital's Growth Equity Partners, for example, specifically describes itself as investing minority equity in established Canadian mid-market growth companies and says its platform can acquire ownership positions of up to 49%.
For owners, the central question is therefore not the monthly payment.
It is how much future enterprise value they are willing to share.
Minority equity deserves serious consideration when management expects substantial investment before the business reaches the next scale.
Examples include consolidating a fragmented industry, entering multiple new markets, expanding production capacity, funding R&D or pursuing acquisitions where integration results may take several years to materialize.
Equity can also strengthen the balance sheet before debt is added.
A company could raise $30 million of minority equity and use the stronger capitalization to support another $45 million of debt rather than trying to borrow the full $75 million.
That can reduce financial risk without requiring owners to fund the entire expansion personally.
Equity also becomes particularly relevant when existing leverage is already high.
Adding more debt simply because management does not want dilution can transfer substantial downside risk back to the operating company.
The cost is easiest to see through future value.
Suppose an investor contributes $75 million for 25% of the company.
That implies a $225 million pre-money equity valuation and a $300 million post-money valuation.
If the company's equity value eventually grows to $600 million, that 25% position would be worth $150 million.
The business never made a scheduled $8 million interest payment to the investor, but shareholders transferred $75 million of additional value above the investor's original capital.
If enterprise value eventually becomes $1 billion, the same 25% position is worth $250 million.
That is why common equity can be simultaneously the safest capital for cash flow and the most expensive capital when growth succeeds dramatically.
Consider an established Canadian company evaluating a CAD $75 million expansion. These assumptions are illustrative only and are not Mehmi Financial Group financing terms or a representation of current market pricing.
If the company borrowed the entire CAD $75 million through private credit at an assumed 11% annual cash interest rate with quarterly interest payments and a five-year bullet maturity, quarterly interest would equal approximately CAD $2.063 million.
Annual cash interest would be CAD $8.25 million.
Over five years, total interest would equal CAD $41.25 million. Assuming an additional 1.5% upfront financing fee, or CAD $1.125 million, total contractual cash outflow including repayment of the CAD $75 million principal would be approximately CAD $117.375 million, excluding legal, diligence, appraisal, monitoring and other expenses.
Now compare an illustrative preferred-equity investment.
If CAD $75 million of preferred equity accrued a 12% annual return compounded annually for five years with no interim cash distributions, the preferred claim would grow to approximately CAD $132.18 million.
That preserves operating cash during the growth period but creates a much larger future claim.
Finally, a CAD $75 million common-equity investment for 25% ownership creates no fixed interest or principal payments. But if the company's eventual equity value reaches CAD $600 million, the investor's position would be worth CAD $150 million.
There is no universally cheapest answer.
The economics depend heavily on how quickly the company grows, when investors exit and how much downside cash-flow protection management requires.
The choice does not have to be debt or equity.
For many $50 million+ raises, a blended structure can allocate risk more logically.
A company seeking $100 million might fund the most predictable portion of the expansion with senior or private credit, establish a separate working-capital facility, and finance the riskier growth component with preferred or minority equity.
An asset-heavy Canadian company may also release capital from owned equipment through a sale-leaseback financing structure rather than using expensive corporate growth capital for assets that can support their own financing.
Similarly, Mehmi's guide to equipment financing and operating lines of credit explains why long-lived assets and short-term operating requirements should normally have different financing structures.
The objective is not to minimize the number of capital providers.
It is to prevent one form of capital from doing several incompatible jobs.
Start with downside cash flow.
Calculate interest, preferred distributions, capital expenditures, taxes and existing obligations under a scenario where revenue or EBITDA materially misses the operating plan.
Then consider dilution.
If the growth plan succeeds, what would the equity issued today potentially be worth five or seven years from now?
Next, examine flexibility. Debt covenants can restrict corporate decisions. Preferred investors can negotiate veto or consent rights. Minority shareholders may request board representation, information rights and protections around major transactions.
Finally, model the exit.
Private credit eventually matures or refinances. Preferred investors generally require a path to liquidity. Minority investors normally expect an eventual sale, recapitalization, buyback or other liquidity event.
The capital should therefore be evaluated through the expected ownership horizon, not just closing day.
Occasionally a company has a strong long-term financing plan but an acquisition, property closing or strategic deadline arrives first.
Bridge financing can temporarily solve that timing mismatch.
However, a bridge should have a clearly identified repayment or refinancing source rather than relying on the assumption that permanent capital will eventually appear.
Canadian companies facing that situation can review Mehmi's guide to commercial bridge loans in Canada.
The bridge should connect two financeable points. It should not be used to disguise an unresolved capital-structure problem.
Sometimes.
A fast-growing company can appear capital-hungry because substantial cash is trapped in accounts receivable.
If customers pay in 60 or 90 days, every additional dollar of revenue can increase the working-capital requirement before the business receives the cash.
Separating receivables financing from permanent growth capital can reduce the amount of expensive equity or term debt required.
For Canadian businesses, Mehmi's invoice factoring cost and approval guide explains how receivables financing differs from traditional corporate borrowing.
This distinction is particularly important during rapid growth: a temporary cash-conversion problem should not automatically become permanent equity dilution.
A sophisticated process normally requires significantly more than an application form. Management should be prepared with:
Canadian companies considering non-bank capital can also use Mehmi's overview of private business lenders in Canada as background on how private financing differs from conventional bank credit.
Equity financing is a securities transaction.
In Canada, private companies and investors need to determine which prospectus exemption applies. National Instrument 45-106 contains major Canadian prospectus exemptions, including the accredited-investor exemption, and the current consolidated framework varies in certain respects by jurisdiction.
In the United States, a securities offering generally must either be registered or qualify for an exemption. SEC Rule 506(b), for example, provides a private-placement pathway that can raise an unlimited amount subject to its conditions, while Rule 506(c) permits general solicitation when the applicable accredited-investor verification requirements are met.
These are legal structuring issues, not merely financing terms. Securities counsel should determine the appropriate structure for the particular issuer, investors and jurisdictions involved.
Sometimes that is the strongest financial decision.
A company should be cautious about a major growth raise if current margins are deteriorating, existing debt already consumes most free cash flow, the expansion economics depend on aggressive forecasts, or management cannot clearly explain where the capital will generate returns.
It may make more sense to fund growth in stages.
For example, management could secure working-capital capacity first, complete one acquisition, prove integration performance and raise the next capital tranche from a stronger position.
Capital availability does not make every expansion economically worthwhile.
Private credit generally has a defined contractual cost, while minority equity participates in future company value. Debt may be economically cheaper if the company grows substantially, but it creates mandatory obligations and financial risk that common equity does not.
Preferred equity is legally equity when properly structured, but economically it can resemble junior debt because investors may receive preferred returns, redemption rights and priority over common shareholders. The exact accounting, tax and legal treatment depends on the specific instrument.
Yes. A company can use equity to strengthen capitalization and private credit for the portion of the investment supported by predictable cash flow. This can reduce both leverage risk and equity dilution.
Not necessarily. Minority investors hold less than a controlling ownership position, but they can negotiate board representation, information rights and consent rights over specific major decisions. Those governance provisions should be negotiated as carefully as valuation.
There is no universal rule. Institutional financing may rely primarily on corporate assets, guarantees from related entities and contractual covenants, while particular situations may require additional guarantees or sponsor support. Requirements depend on the transaction and capital provider.
The company should first determine whether the need is permanent or revolving. Permanent expansion expenses may require long-term capital. Receivables and inventory fluctuations are often better served through an operating line or asset-based facility.
Comparing only the initial interest rate or valuation. Management should model cash obligations, dilution, governance rights, covenants and exit economics through several realistic future scenarios.
Mehmi Financial Group acts as a financing brokerage and intermediary, not a direct lender or equity investor. For larger transactions, the objective is to understand the financing requirement, capital structure and available collateral before determining which third-party capital sources may be appropriate.
If your company is evaluating $50 million or more of growth capital, be prepared to discuss the financing amount, whether the transaction is in the U.S. or Canada, the state or province, the intended use of funds and required timing.
Call 833-863-4644 or contact Mehmi Financial Group to discuss the transaction.
Financing and investment transactions remain subject to third-party underwriting, due diligence, legal review, credit or investment-committee approval and final documentation. Mehmi Financial Group does not guarantee approval, pricing or transaction terms.
.svg){kind=small}