More options for expanding working capital as an alternative to sale & leaseback

Working capital and real estate

Daan Reekers regularly speaks with large companies facing financing challenges, many of whom already have multiple lines of credit spread across a number of traditional banks. With rising interest rates, these facilities are becoming increasingly expensive. The rapid accumulation of rising costs makes it difficult for entrepreneurs to continue operating effectively, improve sustainability, and innovate. And since the credit crisis, traditional banks have not been eager to offer financial support to entrepreneurs. Those companies that do manage to secure a working capital loan are paying a significant interest rate on it.

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In many situations, companies own real estate they use for their own business, which they have often owned for a long time and often also have surplus value. But refinancing with a traditional bank, as opposed to a property financier, is a difficult proposition, especially in these turbulent times. "The major banks are hardly willing to finance the surplus value and primarily focus on operating income. The property financier only considers the value of the property and is also willing to offer a higher LTV of an average of 70%." Reekers cites one of the advantages of this structure as cashing in on the surplus value and using that money to repay the more expensively financed working capital.

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Reekers wants to inform entrepreneurs about the advantages and opportunities of removing their real estate from the operating company's balance sheet and then having it financed by an alternative provider. "You shouldn't always put all your eggs in one basket," he warns. "Many parties are unaware, or insufficiently aware, that a regular bank isn't the only party that can finance real estate." Adelaer can draw on a broad international network of over 1.300 financiers. And this extensive competition, in turn, leads to more competitive prices.

Sale & leaseback does not always deliver the desired result

Adelaer Financial Architects recently managed the financial restructuring of a large Dutch family business that would otherwise have faced significant difficulties. Entrepreneurs often consider sale and leaseback solutions during these times. In our view, this is usually not the solution, as the operating company will have to cover the enormous increase in rental costs and housing expenses, with the risk of ultimately being self-sufficient.

So there are solutions to remove real estate from the operating company's balance sheet and finance it separately at a higher leverage, which Dutch banks are currently reluctant to do.