Financing for Growth and Efficiency

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Why it matters

Successful capital planning starts with setting your business strategy and then pursuing the right financing to drive those objectives. While this may sound fundamental, too many companies settle for the capital arrangement they have, rather than the structure they need with flexibility to best support future growth.

The availability, structure, and cost of capital sources varies and should all align with your company’s plans. For instance, a company focused on growth through acquisition has specific and different needs from an organization intent on growing organically, improving operational efficiency, or restructuring.

Research from consulting firm Deloitte finds that close to half of corporate strategy officers are recasting their growth strategies including Mergers and Acquisitions (M&A) and operating models. Changes of this scale need the right capital support. And, as many companies learned in the last year, regardless of strategic plans, all organizations benefit from having a tailored financing plan in place to maintain momentum during economic disruptions.

Credit conditions may also support a refreshed examination of a company’s financing since lenders may be more eager to deploy capital in an accelerating economy. The following considerations will help you determine if your financing provides the support you need.

Financing solutions should keep pace with priorities

The financing you have in place now may not be the optimal structure to support your priorities. If your imperatives or plans have shifted, your financing needs to be evaluated for flexibility and fit.

For example, a life sciences firm secured a leveraged loan to complete an acquisition. Although that debt was relatively expensive compared to a bank loan and included various covenants that restricted the company’s financial flexibility, it was the financing that best aligned with its strategy at that time. As they paid off debt and restructured, their financial profile improved. Simultaneously, the lending market became more aggressive. Working with the company, the bank seized this opportunity and switched to a syndicated bank loan with lower costs and more flexibility to match its current business goals.

Alternative financing solutions may provide the best fit

A capital strategy should be mapped out to cover your long-term plans, projecting at least 24 months out and beyond. As you seek capital to cover company needs over a longer time horizon, think beyond traditional financing. Your capital strategy may extend to other debt or equity capital solutions.

Consider a fast-growing electronic components distributor. Because of the company’s industry and scale, its legacy financing could not keep pace with the investments necessary for its business expansion strategy. A traditional commercial cash-flow loan was in place with flexible terms and good pricing, but management realized that by turning to an asset-based loan it could borrow more against its inventory to increase leverage and gain access to more capital.

The right partner helps find the best financing

An experienced and connected partner can help your company identify and secure the financial support you need. One of the greatest barriers to a company securing the right financing can be a reluctance to switch from a current financing partner. Often times, multi-year legacy finance providers do not have the experience or resources necessary to devise, structure and secure the optimal capital support.

A company needs a lender that can act as a true advisor, willing to present all available options and clarify the pros and cons of each. A true partner will also help manage the balancing act between how much a business is borrowing, the cost of that capital, the flexibility of the terms, and other company-specific factors. A good partner may even ultimately recommend something that isn’t one of their products, if it is what best suits your needs.

Know your financing options