leave preconceptions behind.
With capital markets in flux, companies raising debt should focus on successfully addressing their needs and avoid disappointment by leaving preconceptions at the door.
During a recent episode of Shark Tank, Mark Cuban & Peter Jones made an offer for $300K equity + a $700K line of credit at "8-9%, whatever the interest rate should be." To which the entrepreneur responded: "8-9%!?! Hahaha, no….for a line of credit!?! we have inventory, assets, hard assets...I know you guys give out lines of credit to like apps and stuff, there is nothing tangible, we have inventory...". What was taken as personally offensive was actually a gift from heaven not otherwise obtainable. While the offer was ultimately accepted(1), the opportunity was nearly lost due to preconceived ideas of what "should" be market.
Borrowers should refrain from making up their minds on what is "market" before they go out and instead focus on successfully addressing their financing needs. Since the beginning of 2022, the average interest rate for companies with <$20MM of EBITDA has increased from ~6% to ~10%+. In parallel, lender risk tolerance has decreased. The resulting terms presented by lenders are nothing personal — they reflect where the market is today.
The Uncommon Borrower leaves preconceptions behind when they go out to raise debt capital - they 1) check the weather before they head out (have a sense for market temperature/appetite and prepare accordingly), and 2) focus on needs and actionable options over what "should" be available.
(1) After the entrepreneur's reaction and before accepting, Cuban added a lockbox-type provision to the line of credit (i.e., first $'s received from customers go towards paying down outstanding debt), providing an added layer of protection that may have otherwise been excluded.