Let's Thank Them

There's a rather large group of people out there displaying vision, commitment, and guts. Other than a few who get lots of attention, they don’t draw many stares. Often, they face ridicule. Many are referred to as dreamers. Some are simply written off as crazy. Yet, they persist, and their numbers are multiplying. In our business, we see them all the time. I sometimes shake my head in wonder at their confidence and their focus. I ADMIRE THEM IMMENSELY. I bet you do too.

So, let's all together thank them. Who are these amazing people? You guessed it. They are today's entrepreneurs. Let’s thank them.

Where is tomorrow's employment, quality of life improvement, and prosperity going to come from without them? These people come from all walks of life, education levels, colors, genders, and family responsibilities. You can’t spot them in a crowd but if you’re lucky enough to ever meet them, don’t try to offer them a job. They will turn you down. They can’t work for you or probably anyone else. They are on a mission.

What would our world be like five, ten, or twenty years from now if suddenly no one anywhere decided to start a business? That is a very sobering thought. Now, realistically, lots of us can’t offer any practical help. But many of us can offer advice and encouragement. Do that if you can and you will be doing a small part to make our children and grandchildren better off.

Let's thank them!

Thinking the unthinkable

Not too long ago, all of us would have deemed it unthinkable that the United States of America would have difficulty borrowing money. Of course, right now, it has no such difficulty. It’s borrowing vast sums with relative ease.

Ok, but let’s peek around the corner to get a glimpse of what may lie ahead. Increasing federal deficits are dramatically enlarging the national debt. Should this continue, we can expect to see government interest costs consume an ever-larger share of the annual budget, crowding out defense and vital social programs. At some point, U.S. government obligations will be viewed as somewhat less than “risk free.” It’s been observed that some investors already think that way, especially after Moody’s recently announced it changed its outlook on U.S. government debt from “stable” to “negative.” A near future ”risk premium” isn’t out of the question.

What does the government’s debt troubles mean for business?

It’s simple: Business interest rates will have to increase also. The natural result of that is most businesses will require more equity in order to operate safely and profitably. That equity will be generating smaller returns than when it could be leveraged. Equity fund managers won’t be able to raise money as easily. Once promising projects and businesses won’t take off too easily. GDP growth will slow. Absent a political miracle, the U.S. economy will likely stagnate.

Doom and gloom? Maybe not. Your crystal ball might work better than mine. I could be wrong, but most of us can agree that interest rates will be high and stay high for quite a while.

Protracted high interest rates increase the likelihood of businesses experiencing more frequent working capital dramas. This makes it imperative they have partnered with a compatible lender who will react thoughtfully to their needs and is able to modify terms in a manner conducive to maintaining or increasing the value of the enterprise.

At Capital Access Partners, we are firm believers that businesses seeking capital of any kind should pay maximum attention to compatibility with their capital providers. Optimal Pairing™ = Optimal Results.

What Happens Next?

Most large enterprises tend to be fairly stable in the medium term (except for those in high tech). On the other hand, small and medium enterprises have at least a 50/50 chance of experiencing significant changes, whether positive or negative, during the average term of a lender-borrower relationship. So, the question we must ask is how will the lender react when it becomes aware of the borrower’s changed circumstances. In other words, “What happens next?”

The agreed structure and pricing aren’t so important now. The lender’s reaction is what is critical. If the borrower has an opportunity to materially increase its size and profits, will its lender thoughtfully offer a revised plan that provides what is necessary for the borrower to plow ahead?

However, if the borrower faces a challenge to its viability, will the lender thoughtfully consider how it can safely be of help or will it have a knee-jerk reaction and panic?

What will happen next is foremost on our minds at Capital Access Partners when we are engaged to assist our clients in securing new capital. We strongly believe that COMPATIBILITY with their capital providers is even more important than price and structure. “Optimal Pairing™ = Optimal Results."

Some of the things we consider include:

• Does the lender have a working familiarity with the industry?

• Does the lender exhibit a very good understanding of the borrower’s current circumstances and its near-term potential OR is the lender merely looking at how it can get the deal past its credit committee?

• Does the lender provide access to its key decision makers?

• What is the lender’s reputation?

• Is the lender financially stable?

When it comes to “What Happens Next?,” you can be certain Capital Access Partners knows the answer.