The Benefits Of Capital Solutions To Reduce Liabilities & Fuel New Growth

Stable businesses can create jobs, stimulate economic growth, and build a brighter future for everyone. Working capital solutions make this possible by helping companies manage their finances more effectively.

Increased Cash Flow

Effective working capital management ensures you have sufficient cash flow to meet short-term obligations and prioritize investing in growth. Working capital is calculated by current assets (cash, accounts receivable, and inventory) minus current liabilities on your balance sheet. A positive ratio indicates you have enough current assets to cover your accrued expenses and fuel your business.

With more businesses seeking meaningful capital and partnership versus dilutive equity raises in this challenging market environment, flexible capital solutions are emerging as an attractive alternative. These solutions can include debt financing with competitive commercial rates, a covenant-light structure, and rapid funding. They can also provide unitranche and subordinated debt structures that bridge the gap beyond what traditional lenders provide in this market. This allows management more autonomy to execute growth strategies post-closing and accelerate the capital stack to achieve their strategic goals.

Reduced Liabilities

In addition to generating an additional pool of cash to invest in high-performing assets and fuel new growth, capital solutions can also help reduce long-term liabilities like environmental obligations. Companies can Often free up significant cash and improve liquidity by reexamining underlying assumptions and securing less costly credit support for these obligations.

Working capital is the difference between a company’s assets (like cash, accounts receivable, and inventory) and current liabilities (including taxes, wages, and interest owed). In addition to funding day-to-day expenses, positive working capital enables companies to pursue growth opportunities without incurring debt. Traditionally, these more credit-focused “opportunistic” strategies have consisted of buying discounted public debt and swapping debt for equity to achieve targeted returns. But the massive growth of private credit markets and structural changes in public markets enable more creative financing structures to reduce liabilities.

Enhanced Financial Stability

Access to working capital solutions can allow a company to retain employees and fulfill contracts with suppliers, even during economic stress. This enhanced financial stability can foster better vendor relationships, leading to lower prices and more reliable supply chains. Structured capital solutions provide an attractive middle ground between private debt and equity. Customized through a negotiation process, these solutions typically offer investors contractual returns without cash-pay interest. They may also provide a more favorable valuation for growth companies than private equity and reduce market timing risk by offering downside protection.

Financially stable businesses have the power to create jobs, stimulate economic growth, and contribute to a brighter future for all of us. And when they’re in a strong position, they can better withstand unexpected difficulties and remain resilient.

Increased Competitiveness

The resulting improvements in supply chain efficiency allow businesses to expand on a more reliable basis, which may help drive higher sales and profits. This increased competitiveness also benefits consumers and other firms that rely on these companies. Access to working capital solutions allows companies to engage in growth possibilities, make on-time payments, and reduce risk. It also boosts flexibility, enhances supplier partnerships, and speeds up decision-making.

Many lower middle market companies seek meaningful capital and partnership but are reluctant to raise dilutive equity during lower valuations. Structured capital solutions span the middle ground between debt and equity and typically offer a contracted return that includes downside protection. Consequently, they appeal to private, founder- or management-owned companies that want to maintain control and upside, as well as private-equity-backed companies seeking access to incremental capital.

Increased Profitability

Working capital solutions provide companies a more flexible way to meet cash obligations without overstretching their balance sheet. Sufficient working capital can help businesses negotiate favorable terms with suppliers and enhance their bottom line. In recent years, a new opportunity set has emerged in private credit: structured equity. Structured equity straddles the middle ground between debt and equity, offering elements of both through a customized negotiation process. These tailored investments can help lower middle market businesses meet their goals, avoiding dilutive equity raises in an era of lower valuations and seizing growth opportunities. Ultimately, these capital solutions can empower businesses to succeed and support economic growth, which benefits communities and society. The ripple effect of this positive impact also extends to individuals and families.