Reaching For Gold In Your Business

Conditions Are Favorable To Refinance Loans

The recently concluded Olympics in Rio showcased many inspirational stories and the drive that it takes to win at the highest levels of sport.   Consider the story of our local hero, Michael Phelps, who at the age of 31 competed in Rio and won 5 gold medals and 1 silver medal to end up with a career total of 28 Olympic medals, 23 of them gold.  Phelps’ totals came from 5 different Olympics.  What few people realize, however, is that in his Olympic debut, in the 2000 Olympics in Sydney, Phelps did not win any medals, though he did make the finals of the 200M Butterfly finishing 5th.  Phelps’ achievements over time, and those of other Olympic icons (Usain Bolt with 3 straight gold medals in the 100M comes to mind), showcased time and again how meticulous preparation, coupled with strong personal qualities, lead to success.  If you were as inspired as I was by the performances of these Olympians and you want your business to “reach for the gold” right now, consider following the Olympians’ recipe for success.

As a first step in the recipe for “reaching for the gold” the timing is right to focus on your business’ financing needs.  If your business is currently financed by its own operations or owner’s funds, consider adding some external leverage.  If your company currently has a lending relationship, consider refinancing it.  Olympians know that success is built on the foundation of attention to the details of their craft and taking advantages of their strengths.  Regardless of how you have been “always” financing your business, it makes sense to revisit that practice from time to time so you can be sure that the business is taking advantage of its strengths.

To take advantage of its strengths, your business must be executing on the fundamentals.  In this case, I’m referring to the mundane activities that surround its corporate status, taxes, insurance, property/contract rights, employee relations, property ownership, etc.  Typically thought of as “paperwork” (or what I call the “regular hum of the engines”), if your company is going to take full advantage of today’s financing opportunities, it needs good fundamentals.  Sometimes in haste to get and carry out contracts and business companies put off or forget to handle the paperwork and details associated with deals and their business.  Other times, laws change (consider the new employee and pay rules recently enacted) and there is a “lag” in arranging for compliance.  Now that we are in the summer, it is a good time to review the status of the company’s corporate books and records, its standing with its State of incorporation, as well as the status of its tax and insurance payments and its employee policies and procedures.  All of these details need to be sorted for a company to take its financing to the next level.

Today, conditions are favorable for companies seeking financing or to refinance their loans.  First and foremost, interest rates continue to be at historic lows.  While the economy has been making steady, if slow, progress, the Federal Reserve Board has been very cautious about raising interest rates from the record lows they reached a few years ago.  At this time, the consensus is that rates are likely to rise again either late in 2016 or early in 2017.  But, given international uncertainty and the slow pace of the recovery, there is no guarantee that rate increases won’t be delayed, if implemented at all, until mid-2017. 

Another impact of low interest rates is the effect they have on lenders.  Lenders need high earning assets to the offset the poor returns that are provided by other investments and their increasing compliance and other costs.  Lenders have responded to these interest-rate conditions with two strategies for their commercial portfolios, (a) taking steps to retain existing customers, particularly those who may be paying slightly higher interest rates; and/or (b) aggressively pursuing new customers because new loans provide greater earnings than investments these days.  Either way, borrowers benefit.  Acting now to change your financing could save your business money or give it the means to boost performance. 

A second condition favoring a financial focus at this time is that competition is particularly fierce for commercial loans.  Competition from commercial lenders is always present, but today the lending environment is particularly fierce as low interest rates drive lenders to seek commercial loans.  Not only that but credit unions have entered the fray exercising their newly enhanced authority to offer commercial loans, and the internet has given financial technology companies, specialty and private lenders, and even out-of-market lenders, the ability to be players in our local lending market.  There are also a number of government agencies and programs that offer lending programs which could make sense for your company.  Whatever the cause, that competition means that your company may find a benefit if it is willing to consider alternatives and perhaps move out of its comfort zone.  The benefits can range from financial, in the form of lower interest payments, lower fees, or higher credits for balances maintained at the bank, to non-financial benefits, such as less reporting, less stringent loan covenants, or less guarantor exposure. 

Follow the Olympians, take advantage of favorable trends and seek out favorable alternatives now that the time is right.  Our Firm has helped many companies put their fundamental details in order and we are available for questions or consultations at any time.  We also maintain relationships with many lenders and are familiar with a variety of other lending sources.  Bottom line, we can assist your company maintain the “hum of its engines” so it can bring home the gold whenever you need us.   

Tony Salazar is an attorney with the Business and Transactional practice group at Davis, Agnor, Rapaport & Skalny, LLC. For questions about this article or your own banking and financial matters, please do not hesitate to contact Tony at 410.995.5800 or via email.