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@Duster, its not a "loan"
Utilising this method via SYME, reduces the need for debt, making the overall accounts looks much healthier.
The credit rating of the company is not effected.
On a business level this would give the client company a better credit rating.
Imagine if RR did go down this option.
-They can raise capital. Shareholders diluted and unhappy
-They can raise debt making them look very risky to investors looking to buy shares
-They could raise working capital via SYME, freeing money they have already spent on inventory.
The later option is better as the balance sheet would have less liabilities and more working capital.
Imagine it on a personal level. Having less debt and more money in your account gives you a better financial position.
Phone off wifi off works now
@weathergeek :-) yes, popped back to see the weekend saga! Entertaining as usual.
I did wonder if someone would call the 'off balance sheet' argument. Well, I am a qualified accountant (many moons ago I have to admit) and, although this would not show as a debt or line of credit it would have an identifiable effect on a balance sheet and therefore would be taken into account by any serious analysis that looked at a company's financial situation. Here goes a balance sheet 101 explanation.
Balance sheet net value of £100. Made up of a bunch of things, but for simplicity, crucially £20 of inventory asset (a current asset) and £80 cash in the bank. The other side of the balance sheet would be shareholders funds = £100........
Monetize the £20 Therefore no longer a reportable asset as no longer 'owned' by the company.
Cash in the bank would increase by £20-6% = £18.80, but Inventory would then be £0
The other side of the Balance sheet would then be Shareholders funds £100 less the cost of the funding (£1.20)
So the net value of the company would DECREASE by the cost of the monetization.
Off balance sheet does not mean 'free' money, nor invisible credit financing.
hope that makes sense, so still a serious question.
Anybody else unable to open WG's link to wine tried directly and through trade happy's post on 19th August no joy. Will turn phone off and back on lol.
Maybe if the so called client has historic loans at higher interest rates, and requires more help?
I don't believe any company can raise a loan less than six percent on just their assets. Just a thought.
Duster..nooo. Your credit worthiness of a company is assessed by ongoing commitments relative to your income/profitability. Balance sheet is simply your operating capital. Balance sheet does not reflect the cost of your financing arrangements.
Also beforegolf, Google 'inventory finance rates' - you'll soon find SME rates for up to 90% liquidity (unlike SYME's 100%) is anywhere from 8-20%.
SYME offers more attractive rates than that 'sub investment-grade' grade, without their value falling off a cliff.
But in effect the balance sheet would actually worse if loan is costing more ??
Nice one Weathergeek, again. Thanks.
Well done WG, surprised you bothered, clearly a double team deramp attempt... LOL
Here for the daily soap opera Before golf?
The number one thing you are missing is key here.
It isn't classed as debt.
Can you now see why companies would want to, like they already have.
Heres an example.
https://winenews.it/en/wine-if-the-warehouse-turns-into-economic-liquidity-without-opening-credit-lines_417592/
So a client would pay a premium because the balance sheet looks a hell of a lot better.
Very good question - any takers to answer this without slating and ****ging anyone off!!!
I know everybody will take this as a deramp, but hey, here you go....
Interest rates across the whole world are at historic lows, even negative in some countries, and in the UK at 0.1%, with the BoE openly saying that going to a negative rate is still 'one of the tools in their box'.
So, why would any 'viable' (the word of the moment according to Rishi) company that has a long term future and is credit worthy/investment grade want to raise capital at a 6% rate?
SYME may have lots of ii interest and a huge amount of funds 'pledged' to the funding model (£8bn), and even a tame Bank in its back pocket, but where are the droves of potential customers that would be willing to take the deal they are offering?
If a company that fits the SYME target market (£150m Mcap, with £15-20m of inventory) cannot raise working capital at a cost significantly less than 6% cost then it is probably not really 'viable' and 'in distress'. That is something that SYME have openly said is not a company that they would do a deal with.
This a genuine and serious question and hopefully some of the bigger brains on here (@weathergeek, @aPunter etc) will be able to answer it with something factual as opposed to the faith based pleadings of the majority
I fully expect to get slated for this, but hey, it's okay, feel free.