CFOs have a window of opportunity to solidify credit relationships before inflation heats up further and closes the door to easy creditsays Greg Stilson, Managing Director of White Oak Global Advisors.
Lenders of all types always have cash and want to lend, but that can change as rates rise and lenders pull out of niche areas and focus on their core markets and clients, Stilson told Dive’s CFO. .
“There is an ongoing debate as to whether inflation is temporary,” he said. “But we know it’s increasing right now.”
Even if a business doesn’t need cash today, it makes sense to ask existing or new lending partners to consider what could be done to strengthen their balance sheets.
Factoring is a good example, especially given recent supply chain issues.
With factoring, companies can spend 3-5% on an annual basis to speed up payments from their suppliers, making them better business partners and potentially giving them a competitive advantage.
“You might be in a very strong position, but your supply chain, your suppliers, may not be as strong as you,” he said. “It’s on the minds of a lot of CFOs. What is the value of the supply chain? Without it, the business ceases to function. Maybe your supplies are net at 90. You can get a loan product where you can pay net 60 or net 30, and all of a sudden you are now helping your supply chain and gaining value as well. So if your competition hasn’t positioned themselves for something like that, all of a sudden you might get the lion’s share of the widget.
CFOs can expect it to become more difficult to obtain credit over the next six to 24 months if inflation persists. If they use a lender today to view their books when their cash flow is strong, they are more likely to get credit on the most favorable terms if they need it later.
“Ask the origination manager to take a quick look at your books because you are thinking about funding in the future given a potentially rising interest rate environment,” he said. . “See what might be right for your business that you don’t use or weren’t aware of. The best time to build that relationship is when she’s not under stress. You don’t want the first call to your lender to be when you need the loan.
Stilson’s company, which focuses on mid-market companies, in August signed a $ 45 million loan to a metals and commodities trading company to acquire an aluminum producer.
“This came from examining our client’s position against that of its competitors,” he said. “Looking at where they were in the landscape, it made sense that they were growing up. There will be more in the future as the easy money dries up.