Cash Sweep
Private Credit glossary · Underwriting & Credit Analysis
Definition
Mandatory prepayment mechanism requiring the borrower to apply a specified percentage (typically 50%–75%) of annual Excess Cash Flow to term-loan principal: ECF = EBITDA - Cash Taxes - Capex - Debt Service - DeltaWorking Capital. The sweep percentage typically steps down with leverage (e.g., 75% above 5.0×, 50% between 4–5×, 25% below 4×, 0% below 3×).
Cash Sweep in plain English
When a company borrows money, the lender wants to get repaid faster whenever the business is doing well — a cash sweep is a rule in the loan that forces exactly that. Each year the company calculates its leftover cash after paying its real bills — taxes, equipment, loan interest, and everyday operating needs — and a chunk of that leftover (often 50% to 75%) must go straight to paying down the loan early. The clever part: the healthier the company gets, the smaller the required sweep, because a business drowning in debt is forced to sweep a lot, while a safe one barely has to. It's like a parent saying "while you owe me a lot, hand over most of your allowance; once you've mostly paid me back, keep more for yourself."
Practice Cash Sweep
Related Private Credit terms
Private Credit practice questions · Private Credit flashcards · Private Credit study guide