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.
Why this matters
This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.
Practical checklist
- Write a 1-line definition for "Cash Sweep" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Sanity-check with a related calculator from the same category on MetricKit.
- Read the related guide (e.g., Loan amortization: how monthly payments and total interest work) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- Loan Payment Calculator: Compute monthly payment, total interest, and total paid for a loan using amortization.
- APR to APY Calculator: Convert APR to APY (and APY to APR) given compounding frequency.
- Real Return (Inflation-adjusted) Calculator: Convert nominal return into real return given an inflation rate (and compare the difference).
- Deferred Revenue Rollforward Calculator: Bridge billings to recognized revenue by rolling deferred revenue forward for a period.
- Break-even Revenue Calculator: Estimate the revenue needed to break even given fixed costs and gross margin.
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.