Definition
A cash sweep is a loan feature that uses excess cash to pay down debt automatically, accelerating amortization.
Formula
Cash sweep = excess cash * sweep percentage
Example
Excess cash $200k with a 50% sweep applies $100k to debt repayment.
How to use it
- Sweeps reduce interest expense but can constrain growth capital.
- Model sweeps when forecasting cash and covenant compliance.
- Confirm how 'excess cash' is defined in the credit agreement.
Common mistakes
- Ignoring minimum liquidity requirements in sweep assumptions.
- Assuming sweep terms are optional when they are mandatory.
- Using sweeps without modeling growth capex needs.
Measured as
Cash sweep = excess cash * sweep percentage
Misused when
- Ignoring minimum liquidity requirements in sweep assumptions.
- Assuming sweep terms are optional when they are mandatory.
- Using sweeps without modeling growth capex needs.
Operator takeaway
- Sweeps reduce interest expense but can constrain growth capital.
- Model sweeps when forecasting cash and covenant compliance.
- Confirm how 'excess cash' is defined in the credit agreement.
- Tie Cash Sweep to the same balance-sheet date, scenario, and decision memo you are using elsewhere in the model.
- Document which claims, costs, or adjustments your team includes before comparing numbers across forecasts, covenants, or valuation work.
Next decision
- Read Loan amortization: how monthly payments and total interest work if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
- Decide whether Cash Sweep belongs in cash planning, valuation, or debt monitoring so the number is used in the right model.
Where to use this on MetricKit
Guides
- Loan amortization: how monthly payments and total interest work: A practical guide to loan amortization: monthly payment formula, why interest dominates early, and how term and rate affect total interest.