When interest rates increase, when is the best time to finance a building renovation, expand operations or generally increase your capitalization for business health? If you’re thinking about financing for any of these reasons or others, what is the best approach? The truth? It depends.
Whether you’re in government contracting, healthcare, technology or manufacturing, your Anglin advisor can help you with your cash flow planning, referrals for cybersecurity upgrades, capitalization for M&As and business valuations, among other services. Keep us in the loop when considering a big financial move to make sure that the timing and options factor your goals as well as tax considerations.
In this article, we’ll cover the basics of making sure your business is properly capitalized when interest rates are rising. Here are some tips to help you get started.
Renew Your Loans and Lines of Credit
Due Diligence: Here is what to look for when comparing lenders:
1. Longest term
2. Lowest interest
3. Highly capitalized for operations
4. The best deal!
Ultimately, you want to find the best option for your line of credit, but do this first: gather all of the necessary paperwork, load up your cash reserves, know your current interest rate and final payment date, look out for penalties and talk to your Anglin advisor before applying. We can help you put your best foot forward with accurate financial statements as well as answers for the underwriters.
How to Invest in Your Business
Where should you invest in your business? You may need a larger staffing budget, plant upgrades, a building renovation or cybersecurity improvements to be ready for growth and economic changes. By improving your access to capital now, both cash and credit, you can move ahead with more confidence.
Here are some current trends in health care, government contracting, IT and manufacturing to consider.
Healthcare: Are you including telehealth in your services lineup? Can patients monitor their own health easily via wearables or through a digital portal?
Studies show that these are the kinds of self-service options patients are expecting from healthcare providers in 2022 and beyond. They are just one area to consider when investing in products or services in a healthcare business.
Government Contracts: Government contracting entails knowing your documentation, ensuring all paperwork is filled out properly and planning ahead to ensure you’re applying for awards ahead of the pack. This means having up-to-date accounting software and trained staff as well as enterprise management. In most cases, this also includes meeting the changing requirements of the DoD, which may necessitate a new hire or a subcontractor to help you ensure all of your quality and security certificates are up to date.
Since the White House declared an Executive Order on the state of the nation’s cybersecurity, an increase in funding could be made available for contracts in the IT, engineering and manufacturing space, so read up on CMMC 2.0 if you haven’t already.
Financing M&A Transactions
If you’re well capitalized, your business will look more valuable to buyers. If your business is the buyer, then you need to show good cash flow and business health to rise to the top for high-value target companies. Even if you’re not looking toward M&A at the moment, set your business up well to finance a needed renovation or expansion, which will support a stronger business valuation.
Debt is a key factor when valuing a business for future sale or succession, so review your company’s debt to income ratio and look for ways to reduce debt.
If you still have higher than average rates on lines of credit or loans, make it a priority to refinance where possible. Even if you missed the window for refinancing to very low interest rates, check with your preferred lender to discuss debt consolidation or lower-interest credit options that make sense at this time. The advantages include saving money with lower monthly payments and less interest overall, improving cash flow and building business credit.
Overall, now is the perfect time to properly finance your projects and business before interest rates increase again.
Contact the Business Consulting team to learn how we can help get your paperwork in order to support your financing or refinancing needs. We can consult with you on the best ways to invest in your business, reduce debt and plan for growth, including tax-smart options.
Additional Reading: Business Valuation for M&A – How to Improve Your EBITDA
RSM US LLP
The White House