Mechanics
Cash sweep
A cash sweep is a mandatory prepayment: a defined share of the cash your business generates above what it needs goes to repaying the loan early, whether you want it to or not.
Also called excess cash flow sweep · ECF sweep · mandatory prepayment · disposal proceeds sweep
The sweep is heaviest when leverage is highest, and steps down as the loan is repaid.
| Net leverage band | Share of excess cash flow swept |
|---|---|
| Above 4.5x | 75% |
| 3.5x to 4.5x | 50% |
| Below 3.5x | 25% |
| Below ~2.5x | 0% |
Market convention at £3-15m. Individual facilities vary.
What gets swept
The sweep does not take your cash. It takes a share of excess cash flow, which is a defined term in the facility agreement and almost never means the movement in your bank balance. The usual construction starts at EBITDA, then deducts cash interest and fees, cash tax, scheduled debt amortisation, and permitted capital expenditure. What survives all of that is the pool the percentage applies to.
The consequence is that the definition matters more than the percentage. A generous capex deduction with a carry-forward for unspent allowance can shrink the pool more than moving the headline rate from 75% to 50% ever would. Borrowers negotiate the rate because it is the number in bold; the leverage is in the deductions underneath it.
The four other mandatory prepayments
The excess cash flow sweep is the one people mean when they say cash sweep, and it is the only one with a ladder. A facility agreement usually contains four more, and each of them sweeps at or near 100%.
Disposal proceeds are swept when you sell an asset or a subsidiary, subject to a de minimis and usually to a reinvestment right that lets you apply the money to replacement assets within a defined window, commonly twelve months. Insurance proceeds are swept unless applied to reinstating the damaged asset. The proceeds of any new debt are swept almost without exception, since the alternative would let a borrower refinance around the facility. And a change of control normally requires repayment in full rather than a sweep at all.
A business planning a disposal should read the reinvestment right before the sale, not after. Without one, selling a surplus site to fund a new one repays the lender instead.
The definition does more work than the percentage. By the time the deductions are taken, the pool is a fraction of EBITDA.
| Step | Running amount |
|---|---|
| EBITDA | £2.4m |
| Less interest | £1.8m |
| Less cash tax | £1.55m |
| Less amortisation | £1.15m |
| Less capex | £0.7m |
| Swept at 50% | £0.35m |
Illustrative build-up on £2.4m EBITDA. Derived arithmetic, not a representation of any facility.
Why lenders want it and why it stings
From the lender's side a sweep is deleveraging insurance. It converts a good year into a smaller loan without requiring anyone's agreement, which shortens the weighted average life of the facility and reduces the refinancing risk they carry at maturity. It also aligns the loan with performance in a way a fixed amortisation schedule cannot: a business that outperforms repays faster.
From the borrower's side it is a claim on precisely the cash you would otherwise use for the opportunistic thing: the bolt-on, the second site, the machine that pays back in eighteen months. A business that has just had its best year discovers that three quarters of the reward has gone to prepaying debt it was comfortable carrying.
What a worked year looks like
Take a business at 4.0x net leverage generating £2.4m of EBITDA, paying £600k of cash interest, £250k of cash tax, £400k of scheduled amortisation, and £450k of permitted capex. Excess cash flow is £700k. In the 3.5x to 4.5x band the sweep takes 50%, so £350k prepays the loan and £350k stays in the business.
The same year at 4.6x leverage would sweep 75%, or £525k. The difference between those two outcomes is one covenant test, which is the practical argument for negotiating where the bands sit rather than only what the top rate is. Figures are illustrative arithmetic on the ladder above, not a representation of any particular facility.
Which tranche gets repaid, and why it matters
A sweep repays debt, but the agreement decides which debt. Two constructions are common. Pro rata application spreads the prepayment across the term tranches in proportion to their outstanding balances. Reverse order of maturity applies it to the final instalments first, leaving the near-term schedule untouched.
The second is better for a borrower and is worth asking for. Applying a sweep to the last instalments reduces the balloon at maturity, which is the refinancing risk you most want to shrink, while leaving your near-term cash commitments unchanged. Pro rata application reduces every instalment slightly, which helps cash flow a little but leaves the maturity profile roughly where it was.
Where the structure includes a revolving facility, check whether a sweep permanently cancels the commitment or merely repays the drawing. A sweep that cancels turns a temporary repayment into a permanent reduction in liquidity.
The ECF sweep is the one with a ladder. The other mandatory prepayments usually take everything.
| Trigger | Typical share swept |
|---|---|
| Excess cash flow | On a leverage ladder |
| Disposal proceeds | Reinvestment rights |
| Insurance proceeds | Or reinstatement |
| New debt raised | Rarely carved out |
| Change of control | Repayment in full |
Market convention. Carve-outs and reinvestment rights are negotiated deal by deal.
Timing, and the lag that catches people
The excess cash flow sweep is tested annually rather than quarterly, on the audited accounts, and is usually payable within a defined window after they are delivered, commonly ten business days. That produces a lag of several months between the year that generated the cash and the payment that removes it.
The practical consequence is that a business can be required to prepay on a strong prior year while trading through a weaker current one. Where seasonality or a known downturn makes that a real risk, the answer is a look-forward test or a liquidity condition allowing deferral where cash falls below a threshold. Neither is standard, and both are easier to obtain at term-sheet stage than later.
How it interacts with prepayment protection
A voluntary prepayment in the non-call period usually attracts a fee. A mandatory sweep normally does not, because the borrower is not choosing to repay. That asymmetry is worth confirming in the drafting rather than assuming, since a facility that charges call protection on swept amounts converts a deleveraging mechanic into a cost.
The related question is whether swept amounts count toward any voluntary prepayment allowance. Where they do, a heavy sweep can exhaust the allowance you were relying on to repay early without penalty later.
What moves in negotiation
Four things move at £3-15m more readily than the headline percentage. The leverage level at which the sweep falls away entirely. A de minimis, so a small excess is not worth the administrative exercise. Carry-forward of unused capex allowance into the following year. And a carve-out for cash committed to an acquisition already under negotiation at the test date.
Beyond those, ask for reverse order of maturity application, a reinvestment right on disposals, and confirmation that swept amounts do not attract call protection. The one rarely conceded is the sweep itself in the first year of a leveraged structure. If leverage opened above 4x, expect to pay it.
Common questions
How much of my cash will a lender sweep?
On the excess cash flow sweep, commonly 75% while net leverage is above about 4.5x, stepping down to 50% between 3.5x and 4.5x, 25% below 3.5x, and often nil below roughly 2.5x. That percentage applies to excess cash flow, not to your cash balance, and excess cash flow is what remains after interest, tax, scheduled amortisation and permitted capex.
Is a cash sweep the same as a mandatory prepayment?
A cash sweep is one kind of mandatory prepayment. A typical facility also sweeps disposal proceeds, insurance proceeds and the proceeds of new debt, usually at or near 100%, and requires full repayment on a change of control. The excess cash flow sweep is the only one that runs on a leverage ladder.
Can I avoid a cash sweep?
Rarely in the first year of a leveraged structure opening above about 4x, which is where lenders are least willing to give it up. What is negotiable is the level at which it falls away entirely, a de minimis threshold, carry-forward of unused capex allowance, and carve-outs for cash already committed to an acquisition.
How is excess cash flow calculated?
The definition is in the facility agreement and is negotiated. The usual build-up starts at EBITDA and deducts cash interest and fees, cash tax, scheduled debt amortisation and permitted capital expenditure. On a business with £2.4m of EBITDA carrying those costs, the pool can be well under a third of the starting figure, which is why the definition matters more than the percentage.
Which part of my loan does a sweep repay?
It depends on the application provision. Pro rata application spreads it across the term tranches proportionally; reverse order of maturity applies it to the final instalments first. Reverse order is better for a borrower because it shrinks the balloon at maturity, which is the refinancing risk worth reducing, while leaving near-term instalments unchanged.
When is the sweep paid?
Usually annually, calculated on the audited accounts and payable within a short window after they are delivered, commonly around ten business days. That creates a lag of several months, so a business can be prepaying on a strong prior year while trading through a weaker current one.
Do I pay a prepayment fee on swept amounts?
Normally not, because a mandatory prepayment is not a choice. It is worth confirming in the drafting rather than assuming, and worth checking whether swept amounts count against any voluntary prepayment allowance, since a heavy sweep can exhaust an allowance you were relying on later.
If I sell an asset, does the money go to the lender?
Usually yes, unless the agreement contains a reinvestment right. Disposal proceeds are commonly swept at or near 100%, subject to a de minimis, with a reinvestment right allowing the money to be applied to replacement assets within a defined window, often twelve months. Read that provision before agreeing a sale, not after.
The full treatment sits in the guide: cash sweep explained.
This page explains a term as it is used in the UK lower-mid-market. It is general information, not advice on any particular facility. Terms vary between lenders and between deals, and the drafting in your own agreement governs.