How to Shave 250-500 Basis Points Off Your Secondary Borrowings

When a potential lender approaches your facility, its appearance will immediately set the tone for their evaluation. And despite all the numbers they pour through, that first appearance will be lurking in their calculations.

Think you can't afford good housekeeping and well maintained grounds? What if it meant a difference of 250 basis points on a USD 50 million loan? That's USD 125,000 per year. For that sort of savings, you can buy a lot of housekeeping, and enjoy the added dividends of the housekeeping.

Ok, so I can not promise you can reach these exact improvements in interest charges—each situation varies. However, I can tell you that significant savings are available when you are looking at non-rating dependent credit. Rated credit, of course, is large institutional debt placements based on formulas using a Mood's, Fitch, or S & P rating.

Again, we are talking about something other than rated credit here. For instance, a machinery supplier is going to take a large secondary security position on the new installation they are providing. Or perhaps your company is selling a significant minority stake in your division to another company.

The difference between the latter and the former is that the latter will put their eyeballs on your property and look around. These lenders/equity purchasers are doing more than objectively looking at numbers. They have made a decision to go subjective by visiting your property. And what they see will significantly affect their opinion and hence the deal they will offer your company.

I am talking about appearance and housekeeping. It amazes me that mill managers and other such leaders often keep immaculate personal residences, but give not a second thought to keeping the facilities with which they are entrusted in a similar condition. Sloppy appearance and housekeeping cost money in many ways, not the least of which is borrowing costs.

You have no excuse for not keeping the industrial facility in your care in the best shape, housekeeping-wise. Where is it written that manufacturing facilities are to be cluttered, dingy affairs where no one wants to work? Study after study has proven that the clean facility is more efficient, has less down time, and less safety incidents—all matters involving real money.

You simply cannot afford not to be the best. And, by the way, that sloppy facility does not reflect on the "facility"—whatever that is—it reflects personally on you and your low standards.

Additionally, in some of the worst cases I have seen, poor housekeeping may lead to total denial of new funds. There is a mill in an urban setting here in the deep southern United States that I suspect fits this category, although I have no proof. One can detect the presence of this mill long before it can be seen by the recycled paper blowing around nearly two blocks in any direction from the facility. Not a positive impression. And not a great running facility.

Clean up and make the treasury department happy.