Is Your Company Leaving Money on the Table?

Inflationary pressures make this question more than a “gut check.” Rising supply chain costs – if you can even find the inputs you require – are all too real. Vendors are tightening payment standards; interest rates are on the move upward; and federal stimulus is only making matters more frenzied.

So, if your company was offered cash at 3.5% interest, fixed for 10 years, subordinate to others in your capital stack and thus effectively treated as equity brought to the table…do you choose to take it?

The secret to “not leaving money on the table” is to consider how you can repurpose internal cash you have preserved through use of incentive financing like this to generate more cash.

Here are three examples.

Vendor Payments 

Instead of leveraging payment terms, use the capital to pay them…early even. Negotiate an early payment discount. While 2% may not cover the full cost of capital, you are differentiating yourself and becoming preferred at a time when they will pick and choose who gets access to scarce supply. In solving their problem, you are positioning yourself ahead of your competitors in the supply chain.  With actual supply to produce, you can generate more sales revenue to boot.

Cash Management 

Consider the costs of how you are managing cash right now. You may be drawing on a line of credit, factoring receivables or engaged in vendor financing to drive cash flow necessary to secure and deliver on sales. Incentive financing allows you to rebalance your capital stack to minimize impact on the bottom line, reduce your total cost of capital and improve cash flow. Additionally, you preserve available capital for other deployment with greater IRR.

Accelerated Investment

While your competitors hold back on investment to preserve cash when prices are high, you can increase competitive capacity via new equipment or facilities AND preserve your cash at the same time. Lenders are looking for more equity. Subordinate incentive financing replaces the equity you otherwise would need to bring to the table. It’s stable, low-cost structure results in a blended interest rate with improved project IRR while your equity is repurposed to other cash needs. You both mitigate risk and grab market share at a time when everyone else is more vulnerable.

Washington County Financial Tools 

There are financial tools unique to Washington County and available today to your company that I anticipate you are not using and thus, as we have seen, potentially leaving money on the table. Here are a couple:

• WashCo Impact Fund – the county has reinvested a portion of sales tax revenue into a fund available to fuel your business’ growth. Rates are typically below market and are fixed for the life of the loan…a critical advantage in an unstable environment.
• PACE Financing – allows you to leverage energy investments to finance your project 100%. The long repayment period and unique security (special assessment on property taxes) means increased operating income. Since this is attached to annual tax payments, many consider it operating expense vs. balance sheet debt. Obligation sticks with the property too.
• WashCo Small Biz Loan – launched on April 7, “Main Street” businesses have no-fuss access to $20,000 at 3.25% interest, principal deferment and no tie to collateral. This provides a limited time opportunity for businesses to make investments that create competitive advantage and added cash flow at the same time.

In redeploying capital by exchanging equity for low-cost debt, these tools are less “gap financing;” and instead “growth financing” that eliminates opportunity costs eating into otherwise greater return on your scarce cash.  We can help you simplify the complex and enhance your cash position.