The New Definition of Leverage: From Access to Alignment

If recent market dynamics reveal anything about capital access, it’s that uncertainty has been reshaping the definition of leverage. Banks continue to lend, and traditional lenders remain active. But internally, stress tests and risk committees are recalibrating risk tolerance. That shift is driving tighter collateral thresholds on term loans and heightened utilization audits across existing credit lines. (Source: Federal Reserve Survey SLOOS, April 2025)

For mid-market businesses, this means access to capital through traditional means is available, but firms may have lost access to their own leverage. That’s because many leaders and lenders continue to mistake leverage for borrowed strength, framing it around questions like: “How many assets can be pledged?” and “What are the cash flow projections?”

In the following two cases – The Test of Character and The Test of Capacity – we explore what it looks like when capital is deployed for structural alignment.

As traditional lenders narrow access and scrutinize performance with outdated models, we underwrite using the 5Cs to discern what a growing business can truly rely on when its capital structure is tested under real uncertainty.

The Test of Character: Bridging Liquidity Loss with Reputational Leverage

• Client 55-Year Food & Snack Manufacturer
• Challenge Line of Credit pulled after inventory devaluation
• Capital Event Investment Bank to replace senior lender; board vote pending
• Key Leverage Operational continuity, contractual predictability, legacy credibility, and supply chain trust
• Capital Deployed $5M Term Loan to preserve operational continuity and maintain vendor reputation

A 55-year-old food & snack company with national operations, had trusted vendor partnerships and a stable retail base up until 2025. That’s when a year-long value dip in their core commodity (nuts) led their senior lender to reclassify the company’s risk profile and pull its Line of Credit entirely. That left them with no interim breathing space, and no bridge capital for the upcoming slow winter cycle.

The company’s operations hadn’t changed. Their equity position remained stable. But with the value of their inventory marked down, their liquidity froze up right as vendor payments and seasonal costs came due.

Their Investment Banking partner was already working to secure a new senior lender, but board approval takes time. What the company needed most was an in-between solution, a junior position that preserved operations and trust without triggering further confusion or distress.

They could have pushed the strain down the vendor chain. But instead, their Investment Banking partner brought our advisors to the table. Together, we structured a $5M term loan, not to fuel growth, but to meet obligations and protect reputation. To honor agreements with their farmers, distributors, drivers, retailers, and communities.

When we reviewed this case, we first saw what the bank saw: a temporary loss on the financials. But we also saw what the numbers alone couldn’t show: Character as Capital. We underwrote for:

• 55 years of supplier loyalty, especially among family-owned farms
• A consistent vendor payment record, even during past downturns
• A brand reputation that lined shelves at Costco and kept them stocked
• Clean use of funds, asset-backed collateral with projected recovery, and a clear capital plan through their IB partner

That $5M became part of their interim capital plan. It gave the business time to finalize board approvals. Time for their IB partner to secure the senior facility. And time for them to unlock a deeper line of credit from their own ecosystem of farmers, because their reputation could carry true capital forward.

The Test of Capacity: Aligning Capital Structure to Operational Truth

• Client A diagnostic company, lab-testing service with $80M annual revenue
• Challenge Business restructuring from facility-dependent model to in-home testing services
• Capital Event Investment Bank seeking to replace senior lender as part of restructuring
• Key Leverage Expanding services while maintaining operational profitability
• Capital Deployed $2M Term Loan to restructure junior debt, stabilize cap stack with evolved business model

Despite its classification as a ‘defensive sector,’ many healthcare businesses are structurally vulnerable. Delayed insurance reimbursements, regulatory lags, and staffing costs create chronic cash flow strain. Access to liquidity often comes at a premium — and unless the business is building independence from the insurance payment cycle, it remains exposed.

A diagnostic company with $80M in annual revenue, had long operated on a facility-dependent model. That structure carried heavy operational weight: expensive machinery, onsite nursing staff, and delayed reimbursements from insurance providers burdened the business even as demand grew.

1. character More than credit — what is legacy, reputation, and leadership integrity of the business?
2. capacity Can the business absorb added capital and convert it into yield now and over its next phase of growth?
3. cash flow Is there room for margin growth with predictability and performance reliability over time?
4. collateral What’s pledged, what’s free, and what’s worth leveraging?
5. conditions Is the use of funds clean and aligned with the evolving architecture of the cap stack?

This financial doom loop persisted until two years ago, when the company engaged an Investment Banking partner to restructure toward resilience. Together, they transitioned the model to include at-home testing services, capturing demand among seniors, homebound patients, immune-challenged individuals, and rural communities.

With this shift, the company saw measurable improvement: insurance payment timelines shortened, margins improved, and profitability became consistent for the first time in years. But while the business model had modernized, the cap stack remained stagnant. Their senior lender remained anchored to the company’s past risk profile, penalizing what was now a profitable, streamlined business with outdated short-term high-interest debt that chipped away at margin.

Having supported the restructuring within the junior layer for two years alongside their IB, National witnessed this inflection point firsthand. When the business reached the threshold for a full recapitalization, the IB selected our team to anchor the junior cap stack.

We served as the trusted ‘bridge-to-senior’ solution, providing the stability the IB needed to replace the legacy facility. In coordination with the IB’s mandate, our advisors structured a $2M term loan to retire high-cost obligations, consolidating the junior layer, and stabilizing the foundation for the new senior lender.

This $2M deployment became a linchpin in a larger restructuring, an alignment between past complexity and future capacity. The funding simply reflected what had already changed. And in that reflection, the cap stack began to mirror the business itself: lighter, steadier, and ready for what lay ahead.

— so when presented to senior lenders, it stands structurally sound and strategically positioned to secure the most favorable terms.

Leverage Comes From Within the Business

When capital conditions tighten, a company’s access to its own leverage diminishes. Many are left scrambling, retrofitting narratives just to stay in play. But Capital is not made to impress or to be judged. At its best, capital reflects the structure of the business itself:

what’s already built, what’s bearing weight, and what might crack under more.

At National, we don’t ask businesses to prove themselves to the right lender. We ask:

• What’s already load-bearing?
• What strain is hiding beneath the story?
• What’s mature enough to press into?