As the worst of the financial distress from the pandemic may be behind us and the manufacturing industry looks ahead, many adjustments are being made by plant and facility maintenance leaders to position themselves for innovation and growth.
Companies in this space look to improve their asset base routinely, but perhaps overlook the proper lending and loan options available to rebound, navigate uncertain times and alleviate the pandemic-accelerated disruptions to cash-flow and liquidity.
Where should industry leaders start? What should they look for? Who should they rely on? Let’s discuss all of these questions and provide solutions as we move further into 2021.
What specific areas of plant or facility maintenance lending are available to me for financing assistance?
Most of the traditional forms of lending are available to companies to maintain and improve plants and facilities including equipment loans/leases, cash flow term loans and even asset-based facilities that primarily take into consideration the profitability and total asset mix of a company. However, one relatively new form of capital made available to middle market borrowers is from lenders who invest in companies focused on environmental, social and governance (ESG) initiatives.
ESG investments are predicated on positive environmental themes, such as lending to companies that have acknowledged and proven sustainable practices. Companies that embrace social policies and practices such as being committed to a diverse and inclusive workplace are attractive to ESG investors. Those companies that embrace sound governance themes, such as being committed to diverse board composition, strong managerial oversight, and possess shareholder friendly policies are also sought out by ESG investors.
If you feel that your company falls into one or more of these categories, it may be worthwhile exploring raising capital from a lender with experience in ESG investing.
For stable or growing companies in this sub-sector that experienced pandemic-related disruptions, what should they keep top of mind for both the short and long-term?
The pandemic has taught facility managers the importance of staying on top of maintenance and to not delay discretionary servicing. Furthermore, facility managers should be asking themselves what could have been done to minimize or mitigate negative impacts from occurring in the future. This truly is a teaching moment and those who do not make adjustments are bound to repeat the same mistakes again.
In addition to operational adjustments, now is an opportune time to evaluate investment opportunities. Broadly speaking, investments in many sectors take the form of protective or defensive investments or growth/offensive investments. In the early days of a pandemic recovery period, one would think that management would be looking to protect the supply chain, production, operations, as well as distribution channels to ensure that in the event that another major disruption occurs the risks are somewhat mitigated or hedged. Once the broader economy returns to pre-COVID levels of activities, companies need to invest for growth whether that be organically through capacity expansion or via M&A activities.
Which assets in plant and facility maintenance are most crucial to protect? How can commercial finance or equipment finance lending help a company like mine?
One could argue that each and every asset plays a vital role in the overall success of a business, thus each and every asset is to be protected. An asset that creates value or has value is one that can be financed, whether it be by a commercial bank, commercial finance company or equipment finance company.
Each lender serves a constituent of borrowers depending on its overall credit profile. On one end of the continuum, companies that demonstrate sustained profitability and hold a low amount of debt relative to the cash flow that is generated will tend to be served by regulated commercial banks. Whereas companies that have variable earnings and a higher level of debt to be serviced will lean towards non-regulated lenders such as equipment finance and commercial finance companies.
Regardless of a particular company’s credit profile, there is a lender out there to provide capital. It is largely a matter of cost, flexible lending options and finding the best fit for your business.
John Felix has served as Managing Director of White Oak Global Advisors, LLC (WOGA) since 2017 and has been actively investing in middle market companies for more than 20 years. WOGA is a leading alternative debt manager specializing in originating and providing financing solutions to facilitate the growth, refinancing and recapitalization of small and medium enterprises. Together with its financing affiliates, WOGA provides over 20 lending products to the market, including term, asset-based and equipment loans, to all sectors of the economy. Since its inception in 2007, WOGA has deployed over $8 billion across its product lines, using a disciplined investment process that focuses on delivering risk-adjusted investment returns to investors while establishing long term partnerships with our borrowers. For more information, visit www.whiteoaksf.com.