A cash sweep is a loan provision that automatically applies excess cash above a threshold to repay outstanding debt.

How it works

Credit agreements define a minimum cash balance or cash dominion account. At each quarter-end (or monthly), cash exceeding the cap “sweeps” to pay down principal — sometimes 50% of excess, sometimes 100%. Triggers may include:

• Operating cash above a covenant floor
• Proceeds from asset sales or equity raises (partial sweep)
• Excess free cash flow definitions in LBO debt

Venture debt sometimes sweeps after major equity events, ensuring lenders share in up-round liquidity even when the loan is not fully repaid at close.

Sweep percentages often step down as debt amortizes — read the schedule alongside covenants so you know when retained cash flexibility improves after hitting revenue or EBITDA milestones.

Some credit agreements exempt equity proceeds from sweep for a short window — know whether your raise cash is swept immediately or available for planned operating use.

Why it matters

• Founders: Model post-debt cash after a raise — headline cash on the balance sheet may not all stay available for operations.
• Investors: Sweeps protect debt holders in buyout and growth credit structures; equity holders should understand priority of cash in upside scenarios.

Common mistake

Assuming all raised equity remains deployable for growth when venture debt includes aggressive sweep language tied to financing events. Model net available cash after sweep triggers before you commit hiring or marketing plans.

Related ideas

See also call protection, covenant, venture debt, and cash flow.