Is Your Company Strained from the Shutdown? Consider an Equity Partner.

Posted On: 04-28-2020

Taking on an equity partner can help solve the financial strain you’re feeling from the COVID-19 shutdown and position your company for growth post-pandemic.

While lenders begin reviewing client balance sheets to better assess their portfolios and the subsequent fallout from the global health pandemic, it’s still largely unknown how many companies are breaching debt covenants and/or soon to default on debt obligations.  Many banks have been inundated with loan requests from the CARES act, temporarily redirecting focus from existing loan performance.  However, these programs will soon subside and cracks in the portfolio will surface.  As banks start to uncover these weaknesses, pressure will increase on client companies to meet payment obligations and stay within covenant.

To the extent your business is in this situation, an equity partner may be the best solution to strengthen your balance sheet, stay in favor with your lender, and grow your business post-pandemic.  Unlike debt, there are no monthly payment obligations with equity.  Equity is more patient, freeing up valuable cash for operations and growth.

In addition, the right equity partner will provide leverageable intellectual capital.  For example, a partner with experience in the same or similar industries may suggest operating efficiencies to improve throughput and cash flow.  Partners with new customer contacts can create opportunities for top-line revenue growth.  While other partners that bring relationships to talent can increase the effectiveness of your team.

Private equity groups are an example of partners that fill many of these roles.  The best groups for you depend on your industry, your needs, and their specific experiences in that space from current or previous investments.  Selecting the right partner requires research and professional advisement.  All potential partners and partnerships aren’t created equal.

If you see challenges ahead, be proactive in finding solutions.  Converting your debt to equity through a recapitalization or strategic partnership will help stabilize your company and lead to future growth.  For more information, please contact Scott Mashuda at River’s Edge Alliance Group, LLC.

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