CFOs have a window of opportunity to shore up lending relationships before inflation heats up further and closes the door on easy credit, Greg Stilson, managing director of White Oak Global Advisors, says.
Lenders of all types still have cash available and want to lend, but that may change as rates rise and lenders retreat from specialty areas and concentrate on their core markets and clients, Stilson told CFO Dive.
“There’s a debate going on whether inflation is temporary,” he said. “But we know it’s going up right now.”
Even if a company 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 sheet.
Factoring is a good example, especially given recent supply chain problems.
With factoring, companies might spend 3-5% annualized to speed up their vendor payments, making them better business partners and potentially giving them a competitive advantage.
“You may be in a really strong position, but your supply chain, your vendors, may not be as strong as you are,” he said. “That’s on a lot of CFOs’ minds. How valuable is the supply chain? Without it, the company stops working. Maybe your supplies are net 90. You can get a loan product going where you can pay net 60, or net 30, and all of a sudden you’re now helping your supply chain and you’re also making yourself more valuable. So, if your competition hasn’t positioned themselves for something like this, all of a sudden you might be getting the lion’s share of the widget.”
CFOs can expect it to get harder to get credit over the next six to 24 months if inflation lingers. If they bring on a lender today to look at their books, while their cash position is strong, they’ll be more likely to get credit on the most favorable terms should they need it later.
“Ask head of origination to take a quick look at your books because you’re thinking about financing in the future given a potentially rising interest-rate environment,” he said. “See what might fit your business that you aren’t using or you weren’t aware of. The best time to build that relationship is when it’s not stressed. You don’t want the first call to your lender to be when you need the loan.”
Stilson’s firm, which focuses on mid-market companies, closed a $45 million loan to a metals and commodity trading company in August to acquire an aluminum producer.
“That came from looking at where our client was positioned to where their competitors were positioned,” he said. “In reviewing where they were in the landscape, it made sense for them to grow. There’s going to be more of that going forward as the easy money dries up.”