Many small businesses often need to borrow money which can come from a variety of sources. A capital structuring consultant, then, is someone who helps their clients find the best loan deal from a lender. They do so by understanding the client’s financial objectives and needs as well as any special circumstances that could interfere with achieving their goals. Capital structuring consultants usually work for a bank and earn income based on how much lending they are able to secure for their clients. They also suggest whether the bank would be able to arrange a loan using different capital structuring options.
Lenders typically do not lend money to small businesses on a rolling basis since it can create financial stress for the business and its investors. This is where capital structuring experts are needed. They help ensure that the best deal possible is secured, particularly if interest rates are low, what cash flow will be available when and whether to use the extra proceeds in other areas or if there could be better possibilities elsewhere.
As an example, a business owner may want to borrow as little money as possible and pay regular interest on the loan. These are called fixed rate loans, which means that the interest rate is fixed for an extended time period. In general, a company will not have to pay anything more in interest than if they had borrowed exactly that amount of money at the time of negotiation with their lender.
On the other hand, the borrower may prefer to have a deal which allows them to borrow a larger amount for less interest. This is what is known as a variable rate loan. The interest rate goes up and down depending on how the lender’s prime lending rate changes in relation to it.
A capital structuring consultant advises clients accordingly, so they can make informed decisions that are best for their business.
