The debt market will lend you three turns. The sale market pays the whole multiple.

What are the three routes?

They answer three different questions, and owners routinely run the wrong one. A refinancing replaces existing debt with new debt. It changes the coupon, the maturity and the covenant package, and it puts no money in the owner's pocket. A recapitalization adds debt above the existing quantum and distributes the proceeds to shareholders, so the owner takes cash out and keeps the business, the equity and the risk. A sale transfers the business to somebody else in exchange for the whole price.

The confusion is understandable, because all three get described as liquidity events by the people selling them. Only two of them produce liquidity, and only one produces liquidity that is final.

There is a fourth route, a minority equity sale, which sits between the recap and the full sale and is covered separately on this site. This piece is about the three debt-and-exit routes, because those are the three an owner is usually choosing between when a lender or an advisor raises the subject.

How much cash does each one actually produce?

Start with the constraint that decides it, which is not the owner's preference but the leverage the market will currently write. For a borrower below ten million dollars of EBITDA the current clearing bands are senior debt of 2.00 to 2.50 times and total debt of 2.50 to 3.25 times. Above ten million the total band is 4.00 to 5.50 times, and above twenty-five million it is 5.00 to 6.50 times (SPP Capital Partners, Market At A Glance, July 2026).

That is the ceiling on a recapitalization, and it is a ceiling on gross debt, not on new cash. An owner already carrying a turn and a half of senior debt below ten million of EBITDA has, at the top of the band, about a turn and three quarters of new capacity, and the proceeds arrive net of fees and of whatever the lender requires held back for liquidity. On the same business, a sale converts the entire enterprise value at whatever multiple the process clears.

The size of that gap is the whole decision. The most recent published size-band table for private middle-market transactions is nearly a year old and must be read as a baseline rather than a current quote: 5.9 times for ten to twenty-five million dollars of enterprise value, 6.6 times for twenty-five to fifty, 8.7 times for fifty to one hundred, and 10.0 times for one hundred to two hundred and fifty, on transactions in the first nine months of 2025 (GF Data, published 27 January 2026). Transactions above two hundred and fifty million dollars averaged 12.2 times in the first quarter of 2026 (Capstone Partners, Capital Markets Update, 4 June 2026). Compare either against a total-leverage band of 2.50 to 3.25 times and the recap is monetizing roughly half of what a sale would, before any of the differences in what happens afterwards.

Both of the leverage-funded routes carry a coupon. Unitranche for a borrower below ten million dollars of EBITDA currently prices at 550 to 750 basis points over the reference rate, an all-in cost of 9.15 to 11.15 percent at a one-month term rate of 3.65 percent; above twenty-five million it is 425 to 575 over, or 7.90 to 9.40 percent all in (SPP Capital Partners, July 2026, with the term rate from CME as at 4 August 2026). A refinancing through the syndicated market cleared an average yield to maturity of 6.7 percent in 2026, down from 7.4 percent in 2025, but still above every year from 2011 to 2022 (PitchBook LCD, 17 July 2026).

What does a recapitalization cost you that a sale does not?

The risk, in its entirety, and at a higher level of leverage than the business carried before. That is the honest description of the trade, and it is worth stating in the terms a lender would use. After a recap the owner holds the same equity in a more leveraged company, with a larger fixed cash charge in front of it, and with less headroom to absorb a bad year.

The market can tell you how much less headroom. Median interest coverage across the middle market held at 1.6 times over the twelve months to 30 June 2026, and the share of borrowers whose coverage was improving plateaued after more than two years of gains, while median EBITDA growth fell to 24 percent from 27 percent, the largest quarter-on-quarter decline in that series on record (KBRA, Q2 2026 Middle Market Compendium, published 28 July 2026). Earnings growth has been doing the deleveraging work in this market. An owner adding leverage now is adding it against an engine that has just decelerated.

The second cost is optionality on timing. Sponsor-to-sponsor sales fell 57 percent by value in the second quarter of 2026 to 24.5 billion dollars, with the count down 38 percent to 94, the lowest quarterly mark in at least a decade, and total US private equity exit value fell 46.3 percent quarter on quarter to 102.6 billion (PitchBook, Q2 2026 US PE Breakdown, 6 July 2026). An owner who recaps today has chosen to sell later, into an exit market that has been getting harder rather than easier, carrying more debt than they carry now.

The third is the one nobody prices at the time. A recapitalization is reversible only by a sale or by paying the debt down out of earnings. If the earnings do not arrive, the next conversation is not about liquidity, it is about the covenant package, and the owner is in it with less equity cushion than they started with.

When is a refinancing the right answer?

When the objective is the balance sheet rather than the shareholder. A refinancing is the right route when an existing facility is mispriced against the current market, when the covenant package no longer fits the business, when a maturity is close enough to be a diligence item in any other transaction, or when the lender itself has become the problem.

The rate environment has removed the argument for waiting. The Federal Open Market Committee held at 3.50 to 3.75 percent on 29 July 2026 by a vote of nine to three, with all three dissents in favour of a hike, the first time since September 2016 that three policymakers dissented in the same direction. The forward curve puts three-month rates at 3.90 percent at the end of 2026 and 4.04 percent at the end of 2027, above where they sit today (FOMC statement, 29 July 2026; forward curve as at 4 August 2026). A refinancing plan that depends on cuts no longer has a trigger date.

There is a specific case where refinancing is not optional. Between 30 and 40 percent of direct lending deals maturing in the next two years have already extended their maturity once, and the lender's own framing puts an incremental extension and a restructuring on the same fork (Lincoln International, 11 February 2026). A borrower in that cohort is not choosing between routes; they are managing a negotiation, and it is covered separately on this site.

What a refinancing never does is answer the owner's question. It does not put money in a shareholder's hands, and an owner who has been sold a refinancing as a liquidity solution has been sold the wrong product.

How do you decide?

By answering two questions honestly before anyone models anything. The first is how much of the owner's net worth is in the business, and the second is whether the owner intends to run it for another five years.

If most of the net worth is in the company and the owner does not intend to run it for another five years, the recap is a delay rather than a solution. It takes out half the value, leaves the concentration problem substantially intact, adds fixed cost, and defers the sale into a market nobody can forecast. If most of the net worth is elsewhere and the owner does intend to keep running it, the recap is doing what it was designed to do: releasing trapped value from an asset the owner wants to keep compounding.

There is one preparation step common to all three routes, and it is worth doing before choosing between them. The current standard is at least thirty-six months of clean, normalized monthly financial statements with a quality of earnings report commissioned early rather than in response to somebody else's findings (Capstone Partners, 4 June 2026). A lender underwriting a recap, a lender refinancing a facility and a buyer running diligence all ask for the same package. Producing it once tells the owner what each route is actually worth, which is the only way to compare them.

The tax treatment of the three routes differs, and it differs enough to change the answer in specific cases. It is also entirely fact-specific, it is not what this article is for, and it belongs in front of a tax adviser before the structure is chosen rather than after.