A recapitalisation is where the shareholder of the business can take surplus accumulated profit out of the business. Debt can be used where the profit has been re-invested and the business does not have spare cash but does have robust cash flows and/or assets which can be used to support a term loan. Often the repayment of the term loan is at a similar level to the dividend previously paid to the shareholder, but the payment can benefit from interest being deductible for tax.
Where the business is stable, and turnover and cash generation are solid and predictable but unlikely to grow significantly, then a lender will look at providing a conservative multiple against the EBITDA, and generally look to amortise that loan over the medium-term unless the loan is covered with long-term security such as a freehold property or royalties.
