A cash sweep, and how much of your cash it takes.
A cash sweep is a clause that turns a share of your surplus cash into a compulsory debt repayment. At each measurement date the agreement measures the company’s excess cash flow, the money left after it has paid interest, scheduled repayments, tax and its permitted capital spending, and requires an agreed percentage of that surplus to be paid straight off the loan. That percentage is not fixed. It starts high while borrowing is high, commonly between half and three quarters of the surplus, and steps down as leverage falls, often to a quarter and then to nothing once the loan is comfortably covered. The sweep sits on top of any scheduled amortisation, so it accelerates repayment rather than replacing it, and it usually leaves the revolving facility alone. This guide sets out what counts as excess cash flow, how the percentages step down, how the mechanism sits against the rest of the structure, and the four terms a borrower should negotiate, at August 2026 rates.
Written for the borrower’s side of the table. This is general guidance, not advice on your specific facility. It deepens the shorter answers in our working guide.
A mandatory prepayment of part of your surplus cash, every year.
A cash sweep is a mandatory-prepayment clause. It sits in the same part of a facilities agreement as the other events that force money off the loan, a disposal, an insurance claim, a debt or equity raise, and it captures ordinary trading surplus rather than a one-off event. Once a year, usually within a few months of the audited accounts being signed, the borrower calculates its excess cash flow for the period, applies the agreed sweep percentage, and pays that amount to the lenders as an early repayment of principal. The payment is not optional and it is not a covenant test that you either pass or fail; it is a cash obligation that falls due whenever the surplus is there.
The mechanism appears most often on leveraged structures, where a fund lends against cash flow at four to four and a half times EBITDA and wants a contractual route to bring that multiple down. It is lighter or absent on a conservatively geared bank deal at two and a half to three and a half times, where scheduled amortisation already does the work. Sweep or no sweep, the direction of travel is the same: the lender wants the loan smaller every year, and the sweep is the clause that makes a good trading year translate directly into a smaller loan rather than a larger cash pile.
The distinction that drives the rest of this page: a covenant measures the company and threatens a default if the number is wrong, whereas a sweep takes the cash and asks nothing else. They are related but separate machinery, and our guide to loan covenants sets out the test side of that pairing.
The cash left after the business has serviced everything it must.
Excess cash flow is what remains once the company has paid for everything the agreement treats as non-discretionary. The calculation starts from EBITDA, or from cash generated by operations, and works down. It deducts cash interest and the scheduled repayments already made in the period, cash tax paid, maintenance or permitted capital expenditure, and the movement in working capital across the year. Some definitions also subtract permitted acquisitions, permitted distributions and voluntary prepayments already made, so the same pound is not asked to do two jobs. What is left is the surplus the sweep bites on.
Every line in that build is negotiable, and the definition is where most of the borrower’s value sits. A capex line capped at a low number pushes more surplus into the sweep, so a growing company argues for maintenance and growth capital to be deducted in full. The treatment of add-backs to EBITDA, of one-off costs, and of cash held for a committed purpose all move the figure. Because the definition is applied to the signed accounts, it also has to be robust to how the accountants present the year, which is why the wording is worth as much attention as the percentage that gets applied to it.
In substance the excess-cash-flow definition is a picture of free cash after debt service, drawn by the lender’s lawyers. Read it the way you read a covenant definition, because the same components, EBITDA, capex, the add-backs, decide both how much you can borrow and how much of the upside you keep. Our guide to negotiating the term sheet covers where these definitions are set.
A high share while leverage is high, stepping down as it falls.
The share swept depends on how leveraged the business is at the measurement date, and it is designed to ease as the loan gets safer. A common structure sweeps a high percentage while leverage sits above the opening level, in the region of 50% to 75% of excess cash flow, then steps that percentage down as the ratio falls: perhaps to 25% once leverage drops through an agreed threshold, and to nil below a further one. The logic is straightforward. While the loan is large relative to earnings the lender wants surplus cash pointed hard at repayment; once the company has delevered into comfortable territory it can keep its own cash and reinvest it.
The thresholds are usually written against the same leverage ratio that anchors the financial covenants, so the sweep and the covenant grid move together as the business pays down. On a unitranche funded at four to four and a half times, the first step-down might sit half a turn or a turn below opening leverage, with the sweep disappearing once the company is a clear margin inside its covenant. On a bank deal geared at two and a half to three and a half times the sweep is often lighter from the start, because the amortisation schedule is already repaying principal on a fixed path. The particular percentages and triggers are a negotiation, not a market constant, and they are worth real cash across the life of the loan.
One point catches borrowers out. The percentage is applied to excess cash flow, not to profit or to the cash balance, so a year with a large working-capital swing or a heavy capex programme can produce little excess cash flow and therefore a small sweep, while a lean, high-conversion year produces a large one. The sweep tracks free cash after debt service, which is exactly the number a lender cares about and the number a borrower should model before signing.
On a good year the sweep can be several times the scheduled repayment.
Take a business with £4m of EBITDA carrying £18m of term debt, about four and a half times, at a unitranche all-in near 10% (SONIA plus around 650 basis points). These figures are illustrative arithmetic at August 2026 rates, not a quote. Cash interest runs at about £1.8m, scheduled amortisation on this kind of structure is light at about £0.2m, cash tax takes roughly £0.4m and maintenance capex another £0.6m.
The excess cash flow
From £4m of EBITDA, deduct the £1.8m of interest, £0.2m of scheduled repayment, £0.4m of tax and £0.6m of capex, and about £1.0m of excess cash flow is left. That is the surplus the sweep measures, before any retained basket is carved out of it.
The sweep
At a 50% sweep the borrower pays about £0.5m off the loan on top of the £0.2m already scheduled, so roughly £0.7m of debt goes that year, three and a half times the scheduled figure alone. Had the sweep been set at 75%, the payment would rise to about £0.75m and the total paydown to nearly £1.0m. The percentage is the whole argument, because it decides how much of a good year the company keeps.
The step-down
Run the business forward and the effect compounds. Each swept pound cuts next year’s interest and the leverage ratio, and once the ratio steps through the agreed threshold the sweep drops to 25% and then falls away. A borrower who has negotiated sensible step-downs starts keeping the bulk of its surplus within two or three years; one who signed a flat high sweep hands it over for the life of the loan.
The illustration is deliberately simple, but it makes the point the glossary definitions miss: on a leveraged structure the sweep, not the amortisation line, is usually the largest call on surplus cash, and the terms around it decide how quickly the company reaches the point where it funds its own growth.
It stacks on top of amortisation and usually leaves the RCF untouched.
The sweep is additional to scheduled amortisation, not a substitute for it. The contracted repayment instalments fall due on their dates regardless, and the sweep is a further payment made once the excess cash flow for the period is known. Because a swept payment reduces principal ahead of schedule, it shortens the loan: the agreement usually applies the swept amount against the remaining instalments, either in reverse order so the loan matures earlier, or pro rata so every future instalment shrinks. Which of those applies is a drafting point worth checking, because it changes the shape of the repayment profile you are left with.
The revolving credit facility normally sits outside the sweep. A revolver funds the swing in working capital and is meant to be drawn and repaid as the trading cycle moves, so sweeping cash into it would defeat its purpose and would not permanently reduce debt, since the borrower could simply redraw. The sweep therefore targets the term debt, the money that is meant to stay repaid, while the revolver keeps its own separate discipline of margin, commitment fee and annual clean-down, as our guide to the all-in cost of debt sets out. Where a structure runs a term loan and revolver together, it is the term loan the sweep pays down.
One consequence follows for a borrower who values flexibility. Cash paid off a term loan under a sweep cannot be redrawn, so a large sweep in a strong year permanently reduces the company’s access to that capital. That is precisely what the lender intends, and it is a fair trade on a deleveraging plan, but it is a reason to make sure the revolver and the retained baskets are sized to leave the business the working headroom it actually needs.
To force the loan down while the company can afford it.
A lender wants a sweep because it deleverages the loan on the borrower’s good years rather than trusting the company to do it voluntarily. A sweep bites hardest on debt carried at a floating rate over SONIA, which sat at 3.73% on 2 July 2026 against a Bank Rate of 3.75% held at the Bank of England’s June meeting. Bank of England, Bank Rate. Every pound swept off principal is a pound that stops accruing interest, so the sweep lowers the lender’s exposure and the borrower’s cost at the same time. It also closes off the temptation to let cash accumulate on the balance sheet or leak out in distributions while the loan sits large, which is the failure mode that turns a manageable loan into a stressed one.
Deleveraging protects the lender at the point that matters, which is refinancing. A loan that has been swept down to a modest multiple of earnings is easy to refinance and cheap to reprice; one that is still highly leveraged at maturity is neither, and the borrower negotiates from weakness. The sweep is the lender’s insurance that the loan it has to be repaid or rolled is smaller than the loan it wrote. For a borrower facing the wall of mid-market maturities across 2026 to 2028, that same logic is a reason not to resent the clause: a company that arrives at its refinancing already delevered has the stronger hand.
The interests are not fully aligned, which is why the terms are fought over. The lender wants surplus cash pointed at the loan; the borrower wants to reinvest in the business that generates the cash. A well-drafted sweep splits the difference, taking a large share while the loan is risky and releasing it as the risk falls, so both sides get what they most need at each stage.
The step-downs, a de-minimis floor, retained baskets and the ECF add-backs.
Four terms carry most of the value, and they are all points of drafting rather than price. The first is the step-down grid. Every half-turn of leverage at which the percentage falls, and every threshold set closer to opening leverage, moves surplus cash from the lender back to the company, so a borrower argues for the sweep to ease earlier and reach nil sooner. The second is a de-minimis floor: a minimum excess-cash-flow figure below which no sweep is payable, which spares the company the cost and administration of making a token prepayment in a thin year.
The third is retained and growth baskets. A borrower with a genuine investment plan negotiates the right to keep a defined amount of excess cash flow, or to reduce the swept amount by capital spent or committed on growth, so the sweep funds deleveraging without starving the business. The fourth sits back in the definition itself: the add-backs. A capex line deducted in full, permitted acquisitions and voluntary prepayments credited against the sweep, and cash reserved for a committed purpose excluded, all shrink the figure the percentage is applied to. Winning on the definition can matter more than winning on the percentage, because it changes the base every year.
None of this is a reason to resist the sweep in principle. On a leveraged deal it is close to standard, and a lender that offers lower pricing in exchange for a firmer sweep may be giving you a good trade. The judgment is where the clause bites hardest, which is a term-sheet negotiation like any other; our guide to negotiating the term sheet sets out how to trade these points against the rest of the package.
We will model the sweep against your own cash flow.
If a term sheet in front of you carries a cash sweep, or you are weighing one lender’s sweep against another’s, a first conversation is confidential and costs nothing. We model the excess cash flow the clause would produce on your own numbers, show what different percentages and step-downs cost you over the life of the loan, and negotiate the definition, the floor and the baskets alongside the rest of the package. See how a mandate runs in how we work, or the full range of what we advise on in our services.