A commercial cleaning company of this size is usually bought with a senior cash-flow term loan or unitranche for the goodwill, a revolver against customer receivables to carry payroll between billing and collection, and sponsor or buyer equity, sometimes with a seller note or rolled equity. Lenders size the debt on the earnings the contract book will still produce under the new owner. They test how long customers have stayed, how concentrated the book is, whether pricing keeps up with wages, whether the workforce and payroll taxes are clean, and who holds the largest accounts.
- Usual structure
- Senior term loan or unitranche, plus a revolver on customer receivables
- Cash-flow leverage
- Senior lenders commonly 2x to 3.5x EBITDA; unitranche stretches further
- What moves the credit
- Account tenure, concentration, wage pass-through, labor compliance
- Collateral
- Receivables and little else; the loan is lent against the contract book
- Common buyers
- Sponsors building facility services platforms, regional operators adding markets
What a lender is really financing
A commercial cleaning company has almost no hard assets. What a buyer pays for is a list of buildings the company cleans every night, the monthly invoices those buildings pay, and the managers, supervisors and crews who do the work. Nearly all of the price is goodwill. Lenders are comfortable with that because the revenue is recurring: a signed office, medical or industrial account bills the same amount every month, and customers rarely switch cleaners unless something goes wrong.
The catch is that most cleaning agreements can be cancelled on short notice without cause. Lenders read the contracts as evidence of a relationship, not a guarantee of revenue. The underwriting task is to show that the relationships are durable and belong to the company rather than to the founder. Buyers at this size are usually sponsors building facility services platforms, regional operators entering new markets, and management teams buying out founders.
| Line of work | How it earns | How a lender reads it |
|---|---|---|
| Office and commercial contracts | Fixed monthly fee for a defined scope | The core of the value; judged on tenure and concentration |
| Healthcare and laboratory facilities | Higher-spec cleaning at higher prices | Sticky, since switching means retraining and compliance risk; lenders check the protocols are documented |
| Industrial, warehouse and manufacturing sites | Contracted scope, sometimes with day porters and specialty work | Solid, though tied to the client's own volumes |
| Schools and government contracts | Awarded by bid for a fixed term | Solid while the term runs; rebid dates are mapped against the loan |
| Project work: post-construction, floor care, one-time cleans | Per-job pricing | Lumpy; given little weight in sizing the debt |
The contract roster is the collateral
Because there is little else to lend against, the roster of accounts does the work that equipment or real estate does in other acquisitions. A lender will go through it line by line, and buyers who build it before the lender asks find the problems while there is still time to renegotiate the price.
- Tenure. How long each account has been a customer, and monthly billing by year. Tenure is the best predictor that an account survives a change of owner.
- Notice and assignment. What notice each customer can give, and whether the contract can be assigned; in an asset purchase some need consent. See change-of-control consents.
- Who holds the relationship. The contact at each account and who at the company manages it. An account that deals only with the founder is at risk when the founder leaves.
- Concentration. Revenue by customer for each year, largest first. Lenders ask what coverage looks like if the biggest account leaves. See customer concentration.
- Rebid calendar. When bid contracts come up. A large rebid soon after closing is a real risk to the base case.
A contract a customer can cancel on short notice is worth exactly as much as the relationship behind it. The file has to show the relationship.
Labor: the biggest cost and the biggest compliance question
Wages are most of what a cleaning company spends, so small changes in pay rates move earnings a long way. Lenders look at whether the company has passed wage increases through to customers, whether any accounts are priced below what it now costs to staff them, and how announced minimum-wage increases in its markets will land. A projection that holds wages flat will not be believed.
- Worker classification. Some cleaning companies run crews as independent subcontractors. If those workers are really employees, the company carries back-tax and penalty exposure. Lenders ask how crews are engaged and want a view on the exposure.
- Payroll taxes. A labor-heavy company that fell behind on payroll taxes has a problem the tax authority can collect from the business. Lenders check the filings, and any balance is paid at closing or the deal is restructured.
- Unions and wage rules. Where the workforce is unionized, lenders read the agreements and any pension obligations. Where the company holds public contracts, prevailing-wage rules can apply.
- Eligibility, insurance and bonding. Employment eligibility paperwork, workers' compensation coverage and claims, and the fidelity bonds many commercial customers require. A lapse in any of them can cost accounts.
Whether the deal is an asset purchase or a stock purchase changes which of these liabilities come with it, and what indemnities and escrow the buyer needs. See asset vs stock purchase and escrows and holdbacks.
Earnings: what lenders add back and what they take away
The EBITDA a seller presents rarely matches what a lender will lend against. Some adjustments help the buyer; some hurt.
- Founder pay and perks. Added back, but only after a market salary is deducted for whoever will run the company.
- Family on payroll. Added back if those people do not work in the business and their pay ends at closing.
- Founder doing unpaid work. A deduction. If the founder inspects buildings nightly or covers shifts, the lender deducts the cost of a manager to do it.
- Accounts already lost. Removed, even if they still show in the trailing twelve months.
- Accounts priced below cost. Adjusted to what they will earn after repricing, or removed if they will be dropped.
Coverage is then measured on the adjusted figure; conventional lenders commonly look for at least 1.25x. A worked example in plain numbers: adjusted EBITDA of 1,300 against annual debt service of 1,000 clears 1.25x, but not by much. If the founder turns out to have been managing two large accounts personally and replacing that work costs 80, EBITDA falls to 1,220, which no longer covers 1.25 times the payments. The debt then shrinks, or the equity grows. See EBITDA add-backs and quality of earnings.
How the capital structure is usually built
| Layer | Role in a cleaning company acquisition |
|---|---|
| Senior term loan | Funds the goodwill; senior cash-flow lenders commonly lend 2x to 3.5x EBITDA, measured after the adjustments above |
| Unitranche | One loan from a private credit fund for companies with long-tenured, diversified books, stretching further at a higher rate |
| Revolver | Against customer receivables; advanced at 80% to 90% of eligible receivables, excluding invoices more than 90 days past invoice |
| Delayed-draw term loan | For platforms buying smaller cleaning companies after closing |
| Seller note or earnout | Keeps the founder invested in account retention; subordinated to the senior lenders |
| Equity and rollover | Sponsor or buyer equity, sometimes with the founder or managers rolling a stake |
Working capital is the item buyers most often underfund. Customers pay on invoice terms, while crews are paid weekly or every two weeks, so a new owner funds several payrolls before collections catch up. The revolver and the working capital peg have to be set with that cycle in mind. Borrowing bases commonly cap any single customer at 20% to 25% of eligible receivables, which limits what a concentrated book can borrow. A company this size has usually outgrown SBA 7(a), which caps at $5 million. For platforms, see add-on acquisition financing.
What goes in the file
The term loan needs the P&L, balance sheet and debt schedule, with a year-to-date P&L and AP aging where available. The revolver needs an AR aging by customer with days outstanding and the existing liens. The acquisition adds the target's latest full year of figures, never an older year, and the letter of intent. For a cleaning company, add:
- A customer roster: account, start date, monthly billing, scope, notice terms and whether the contract is assignable.
- Revenue by customer for each year, so churn and concentration can be measured.
- Payroll registers, payroll tax filings, and a list of any subcontractors.
- Certificates for workers' compensation, liability insurance and customer-required bonds, and any union agreements.
Senior bankers run every Midas Partners engagement. Once the documents are in, software builds the financing model, lender presentation, blind teaser and underwriting memo in a day, and a senior banker checks every page before the client approves it; by hand, at least a week. The model shows account tenure and churn by cohort, so a lender sees retention rather than takes it on faith. Of the 1,800+ lenders in the book, 1,148 write term and private credit and 235 write asset-based loans and lines. See the package.
Common questions
- Will a lender finance a cleaning company whose contracts can be cancelled at any time?
- Yes. Short notice periods are normal in the trade and lenders expect them. What they want is evidence the accounts stay: long tenure, low churn, no single account the business cannot live without, and relationships held by the company's managers rather than only the founder.
- How do rising minimum wages affect the loan?
- Lenders test them in the projections. A company with a record of passing increases through to customers, and contracts that allow it, reads much better than one that absorbs them.
- Can part of the price depend on accounts renewing?
- In a conventional deal, yes. An earnout or a seller note reduced for lost accounts is common, and senior lenders allow either if it is subordinated to them. See earnouts and acquisition debt.
- Why is the revolver smaller than the receivables?
- Invoices more than 90 days past invoice are typically ineligible, and any single customer is commonly capped at 20% to 25% of eligible receivables. What remains is advanced below face value.
- Does an unpaid payroll tax balance kill the deal?
- Not usually, but it has to be resolved. The balance is typically paid at closing from the proceeds, and in a stock purchase the buyer needs indemnities for anything found later.