Read This Now & Avoid Regret Later

 

One of our research people follows supply chain issues closely. In fact, they often visit the Ports of LA and Long Beach personally to see what is moving, where, and if things are going smoothly.

They are not. But you already knew that.

Do you recall the announcements of the port operating seven days a week and all day + night? During Sunday’s trip, not one crane was seen moving containers off or on a ship. There were two berths, where a ship could dock, that were empty. Not one truck was delivering or taking a load. In fact, there weren’t any trucks on the road either.

This is not exactly a sign that there is any sense of urgency by the ports.

Over the weekend, we had an interesting discussion with a friend. They told us that there is a new trend: if what you want to give someone isn’t able to be ordered, you buy (knowingly backordered) and then you buy a box and put the gift receipt and a photo of the gift in it. If you want to be sneaky, you also put a rock in it, so the recipient can’t tell it is empty!

The reason we are mentioning these anecdotes is that the supply chain issues are being handled without a sense of urgency. Eventually, inventories will need to be replenished. The replenishment will not be back to just-in-time levels but to the customers adaptation to “soon-enough.”

We are also watching for the returned item policies to become much stricter.

 

For Many Companies, There’s No Sense of Urgency In Plans for 2022

 

We expect 2022 will be a time when companies tighten up their finances, either by raising money from stock offerings or by borrowings. As many of our clients don’t have equity as a financing option, we expect to see a flood of loan requests in 2022 (specifically the first half).

We recommend that companies meet with the CPA and corporate attorneys in late November and early December to see what can be done to minimize taxes and reduce financing costs in the current year. It’s surprising how few companies actually do this. That’s penny wise and pound foolish to us.

The Federal Reserve doesn’t have to end up raising interest rates (we don’t believe they will). If longer term treasury yields continue to rise, companies will make a real effort to raise capital before they go up too much (i.e. it puts the math of a deal in jeopardy). The yield effects of a Fec tapering their treasury purchases would be similar.

 

When The Fed Hits The Brakes, Someone Hits The Windshield

 

Further, an interest rate increase will strain those who have borrowed on either an adjustable or floating (such as LIBOR, Prime, CMT etc.). These struggles would place the advantage on the buyer with ready cash. When a company comes up short in cash in this environment, or is unable to rollover a loan, they effectively “hit the windshield” as they say on Wall Street.

 

Working Capital Loans

 

Of the three types of loans we work on (working capital, real estate secured and equipment financing), working capital is the most difficult one to qualify for under the best terms. Income statements are scrutinized much more and balance sheets actually matter to the lender. A great credit score is insufficient to get the best terms.

Right now is a great time to have discussions about this with your CPA and your corporate attorney. There are a number of ways that debt can be managed off balance sheet while also borrowing under a working capital loan. If you can term the loan out, well that’s like another layer of frosting on the cake.

 

Structuring a Loan

 

We encourage anyone considering these thoughts to call us. and hear what we think they can qualify for, before they consider a move. Actions can be taken after the CPA+attorney meeting but before year end.

Don’t go with a single bank in your thinking; there might not be enough time to get everything done. This is where we shine, and earn our money.

Call us if you’d like to discuss when, where and how on loans. We’ll give you the confidence to act with knowledge.

 

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