Banks and investors of all stripes are noticeably tightening the reins when extending securities, covenants and spreads. The link between the subprime crisis and the more stringent requirements companies face to obtain credit is an open secret when speaking with a loan officer. The days of exorbitant liquidity and cheap credit seem to have passed. And just a few months old, the recent boom in the growth market of standardized “mezzanine solutions” for SMEs collapsed in mid-2007. The reason: mezzanine backers are experiencing some difficulties in refinancing the portfolios they structured on the capital market.
Then it’s all the more important to consider every angle of financing a company. To be sure, there are plenty of lending components, but they don’t always create a sound financial architecture when it comes to capital and cost structures.
In the last few years, the Frankfurt-based lending specialists at the Steinbeis Consulting Center SME Finance and Investments have thought in interdisciplinary terms to develop and put into practice an array of “smart” financing models for owner-managed companies as well as those listed on the stock exchange. In their financial consulting work, the experts often adopt a multilevel approach.
The outcome: companies flexibly and costeffectively secure loans on the capital market and through other financiers. Packages entail conventional, alternative and innovative forms of financing – each component perfectly balanced and matched to one another. Even customers in the automotive supplier industry reap the benefits. Despite the passing clouds overhead, the global market for innovative electronics in automobiles will, over the longer term, continue to average high rates of growth since the use of electronic components in automobiles will only become more prevalent.
Normally, margins for electronic automobile equipment in the automotive supplier industry are slim, but suppliers will have to bear an even greater share of the development costs of new technologies – which means the need for financing will also increase. It’s times like these in which companies rise or fall on a carefully considered financing package. This was precisely the case with an automotive SME working with Steinbeis Consulting Center SME Finance and Investments experts to markedly improve the former’s financial circumstances. Following an investigation of the financial structure and optimizing the working capital, the company was able to raise the mezzanine funds needed for sufficient growth capital. As a result, this boosted the company’s equity ratio, thereby reducing short term lines of credit.
This action advanced the company’s rating from “BB” to “BBB”. Afterwards, interest rates offered by banks dropped and the company enjoyed more generous terms of credit in their current account (used to finance the additional growth). This partnership between Steinbeis professionals and the customer created much more than a financing model which helped the company meet its objectives – when looking at the bottom line, the model involved better terms of credit and a well-balanced financial architecture.
Dieter Dorn, Christian Schulte
Steinbeis Consulting Center SME Finance and Investments (Frankfurt)
stz1180@stw.de