An operating company (OpCo) is the subsidiary within a HoldCo/OpCo structure that conducts actual business operations, generates revenue, employs workers, and holds the operating assets — as distinct from the holding company (HoldCo) above it that owns the equity. Lenders typically lend to the OpCo and may require the HoldCo to pledge its equity interest as additional collateral. See irs.gov/businesses/corporations and sec.gov/cgi-bin/browse-edgar for tax and disclosure requirements in HoldCo/OpCo structures.
In a HoldCo/OpCo structure, the operating company is the entity where business activity actually occurs. The OpCo holds contracts, employs staff, owns or leases equipment, carries inventory, and generates the cash flows that service debt. The HoldCo above it has no operations — it simply owns 100% (or a controlling stake) of the OpCo's equity. Why lenders care about the OpCo/HoldCo distinction: Cash flow underwriting is always done at the OpCo level. A lender evaluating a term loan or line of credit will analyze the OpCo's revenue, EBITDA, debt service coverage ratio (DSCR), and balance sheet — not the HoldCo's stand-alone financials, which show only the equity investment in the OpCo. If the borrower presents consolidated HoldCo financials, the lender will often require consolidating schedules to isolate OpCo performance. SBA lenders face an additional layer: SBA affiliation rules (13 CFR Part 121) require aggregating affiliated entities when determining small-business size. If the HoldCo owns multiple OpCos, all affiliates are counted together for SBA size standards. See sba.gov/document/support--sba-sop-50-10 for SBA affiliation guidance. Liability structure: The HoldCo/OpCo separation provides liability firewall benefits — the HoldCo's other assets (equity in sister OpCos, cash reserves, real estate) are generally not exposed to an OpCo-level creditor claim, provided corporate formalities are maintained. Courts can pierce the corporate veil if the entities are operated as a single unit without proper separateness. Exit and M&A context: In acquisition transactions, buyers may acquire only the OpCo (an asset or stock purchase at the OpCo level), leaving the HoldCo and its other assets outside the deal. This is common when the seller wants to retain real estate or intellectual property in separate entities. The purchase price and financing structure (acquisition debt, mezzanine, equity rollover) are tied to the OpCo's cash flows and enterprise value.
An OpCo (operating company) is the entity that actually runs the business — it has employees, contracts, and cash flows. A HoldCo (holding company) exists only to own the equity in one or more OpCos. The HoldCo has no operations of its own. Lenders underwrite loans to the OpCo because that is where revenue is generated. The HoldCo may provide additional security by pledging its equity interest in the OpCo.
Yes, but the lender must apply SBA affiliation rules (13 CFR Part 121) to aggregate the revenues or employees of all affiliated entities controlled by the same HoldCo. If combined affiliates exceed the applicable SBA size standard, the OpCo does not qualify as a small business for SBA purposes. See sba.gov for SBA size standards by NAICS code. Apply at ClearValue Lending to assess SBA eligibility for your structure.
Often yes. Lenders typically require the HoldCo to (1) pledge its equity interest in the OpCo as collateral and (2) provide a guarantee of the OpCo's obligations. This is because the HoldCo controls the OpCo and could, without a guarantee or pledge, direct the OpCo to transfer assets or dividends that impair the lender's collateral position. Individual owners of the HoldCo are also typically required to provide personal guarantees.