Tag Archives: Debt

What Impact Will Rising Interest Rates Have on Business?

Situation: A CEO notes that the national debt has nearly doubled over the last 8 years and the Fed is talking about raising interest rates. It’s not clear what impact the debt, or rising interest rates will have. Has this impacted your business and how are you coping? What impact will rising interest rates have on business?

Advice from the CEOs:

  • Impact on business and customers.
    • The prospect of either rising interest rates or taxes increases uncertainty – customers are taking longer to make purchase, expansion and other decisions.
    • Companies are not spending the cash that they have out of concern over possible future expenses or the possibility of a downturn. Large companies have trillions of dollars of cash on hand. Some of this is held off-shore because of the tax consequences of repatriating the funds.
    • Lack of consumer demand holds back investment in production expansion.
    • Feeling of loss of control.
    • More concentration of wealth in fewer hands.
  • Other impacts
    • More people, old and young, are opting out of the business economy.
  • What are you doing to cope?
    • More involved in collections to keep this under control.
    • Delayed payments from big customers are part of the problem – conservative financial management.
    • Manage liquidity and cash – cash is king!
    • Adjust lifestyle and delay purchases – for example buy smaller cars.
    • Scrutinize contract terms – especially AR.
    • Scrutinize our business model. For example look at subscription models or Great Game of Business models.
    • Utilize those who are normally unemployable but trainable for repetitive task jobs. They work hard and produce good work.

How Do You Finance a Ramp-up? Five Suggestions

Situation: A company has been growing within budget. In the near-term they anticipate an opportunity for significant growth. The challenge of this ramp-up is that it will sap existing financial resources as expenses associated with the ramp outpace revenues. In growth terms this challenge is known as financing the inflection point of the hockey stick. How do you finance a ramp-up?

Advice from the CEOs:

  • Investigate a number of different financing options and combinations of options. While historically the company has been financed by venture capital, as you finance your ramp think beyond venture capital as the sole source of funds.
  • Investigate corporate partners who would consider the company a strategic investment. This creates a higher valuation for the company than you will find with VCs alone.
  • Within the VC community, to raise a modest level of funds focus on 2nd and 3rd tier funds – particularly those who specialize in the company’s technology and market and who will see this opportunity as fitting their portfolio strategy.
  • Outside of the VC community, look at banking and fund options that offer creative ways of using both investment and debt to fund the company through the inflection until you are again cash positive. Examples are Comerica Bank that has been building its position among Silicon Valley start-ups and venture capital firms, and Paradigm Capital that will provide loans by collateralizing your IP.
  • Look closely at your IP portfolio to maximize IP value to either VCs or other funding sources. If your IP position is strong it boosts your ability to attract funding.