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Valuation, Financing, Transaction, Merger, Acquisition, Divestiture, Fairness Opinion, Corporate Finance, Financial Advisor

When to Maximize Secured Debt Financing?


Maximizing secured debt financing should be considered: to undertake a growth initiative when the shareholders of the business either do not have the financial capacity to further invest equity into the business; or, to undertake a transaction such as an acquisition or management buyout which may require the maximum borrowing capacity of the business to execute the transaction.


Maximizing secured debt financing provides the following advantages:  it enables growth initiatives and transactions to be implemented; it maximizes the availability of the lowest cost of capital for a business; it enables shareholders to minimize their equity investment thereby minimizing their financial risk; it provides access to leverage to enable the maximum return to be achieved on the shareholders equity investment.


Maximizing secured debt financing may require accessing non-traditional lenders including:  asset based lenders which provide operating lines which typically offer improved margining on working capital assets and less restrictive financial covenants; and, term lenders or lease alternatives which lend on the value of the assets of the business.

Case Illustration


To view the numbers for the case illustration click here.


ABC Co. (“ABC” or the “Company”) had a fully utilized operating line which was constraining the day-to-day operations and growth of the business. ABC management estimted ABC sales could be increased by 75% if the Company could access sufficient secured debt financing to fund its working capital requirements. 


ABC management and its trusted advisors undertook a refinancing to increae ABC’s operating line from $17.5 million to $35 million and increase the Company’s long-term debt from $1 million to $3 million. 


ABC's balance sheet, income statement and selected financial statistics/ratios are presented before and after the refinancing.  In the illustration: the interest rate on the operating line was assumed to be 6% before the refinancing and 7% after the refinancing; margining was 75% of receivables and 25% of inventory before the refinancing and 80% of receivables and 50% of inventory after the refinancing; and, the long-term debt was adequately secured by the Company’s capital assets.  The refinancing enabled ABC to supports its growth in sales by 75% and increased the Company's net earnings by 64.2% without any increase in the equity investment by the Company’s shareholders.


To view our firm's Financing experience click here.


Claude Conan, CA, CPA, CBV, MBA (Founder and President of Quantum Advisory Inc.) can be reached by telephone at 780.669.9724 or email at

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