Designing the Right Funding Structure - Not Just the Lowest Rate

Why Funding Strategy Matters More Than Ever

For many businesses, the first question in any funding discussion is still, “What’s the rate?”
It’s an understandable instinct - interest cost is tangible, easy to compare, and often headline-grabbing. But the reality is that a low rate can disguise a poor structure.

A facility that’s cheap but rigid can constrain liquidity, increase refinancing risk, or create covenant pressure when the business needs flexibility most. The smartest businesses today focus not only on the cost of capital, but also on the shape of their capital.

This is where the real art of funding design lies - aligning capital structure to business strategy, not the other way around.

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How the Funding Landscape Has Changed

In Australia’s middle market, the credit conversation has matured. Lenders today look far beyond pricing when assessing appetite and structure. They weigh:

• Cash flow resilience — the ability to maintain coverage under variable conditions.
• Management quality — how disciplined and transparent decision-making is.
• Security mix — whether collateral aligns with loan purpose and asset life.
• Forecast visibility — how confidently the business can demonstrate future performance.

This sharper focus doesn’t necessarily make capital harder to access — it simply means capital needs to be structured smarter. The businesses that anticipate these factors can still negotiate highly competitive terms, provided the fundamentals and presentation are right.

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‍What “Structure” Really Means

The funding structure defines how your capital behaves as the business scales or comes under stress. A strong structure doesn’t just meet today’s needs — it adjusts with the business.

When we talk about structure, we’re referring to:

1. Facility type and product mix
   Whether it’s working capital lines, term debt, equipment finance, trade facilities, or private credit — each instrument behaves differently. Matching the right product to its purpose avoids unnecessary strain and refinancing pressure.
2. Tenor and amortisation
   Long-term assets should be funded by long-term facilities. Using short-term debt for permanent needs is one of the biggest causes of cash pressure.
3. Security and covenants
   Security should reflect both liquidity and risk — not all assets need to be pledged. Covenants must be realistic, measurable, and flexible enough to handle natural business variability.
4. Liquidity buffers
   Headroom isn’t wasted capacity; it’s a risk management tool. Maintaining margin between drawn balances and total limits gives management agility when demand fluctuates.
5. Funding diversity
   A mix of lenders or instruments (bank + private credit, for example) can protect against credit tightening and improve negotiating leverage.
6. Alignment with business cycle
   Funding should move with the rhythm of operations — whether it’s seasonal sales, project milestones, or contract progress claims.

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The Risk of Overtrading

One of the most common — and underestimated — risks we see is overtrading.
It happens when a business grows faster than its funding structure allows.

Sales expand, inventory builds, receivables stretch, and suddenly liquidity evaporates even though revenue looks healthy. When that happens, management often turns to short-term facilities to plug the gap — compounding stress, not solving it.

A sound funding structure anticipates this by scaling with working capital demand. Proper alignment of product type, tenor, and limit size ensures that growth remains sustainable — not self-destructive.

In short: bad structure magnifies growth risk; good structure amplifies growth capacity.

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Get Ready Before You Borrow

The best outcomes come from planning before you approach the market. Lenders respond best to businesses that demonstrate control, clarity, and forward visibility.

Being “ready” means having:

• A clear funding purpose and structure mapped to business strategy.
• Accurate forecasts and debt service coverage analysis.
• Transparent security and covenant narrative.
• A confident and consistent message across all documentation.

Preparation builds confidence — and confidence reduces pricing risk.

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When the Market Turns, Structure Protects You

When market conditions tighten, it’s not the businesses with the cheapest facilities that fare best — it’s those with flexible structures and proactive lenders.

Pre-negotiated buffers, clear reporting discipline, and lender relationships based on transparency allow management to act decisively when liquidity tightens.
Structure is your shock absorber when external conditions change.

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How We Help — From Strategy to Execution

Designing the right funding structure is only part of the equation.
Execution matters.

Our New Finance service goes beyond planning — we deliver the process from concept to completion:

• Funding Strategy & Structure – determining the optimal mix of bank debt, private credit, and equity to support your objectives.
• Lender Engagement – preparing forecasts, information memoranda, and financial narratives to present your business credibly.
• Refinancing Support – managing the process from lender approach through to term sheet negotiation and completion.
• Funding Readiness Review – identifying improvements that strengthen confidence before market engagement.

We bridge the gap between what your business needs and what lenders look for — ensuring that capital is structured, secured, and scalable.

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Final Thought: The Right Structure Scales With You

The cheapest funding isn’t always the smartest. The right structure is one that grows with your business — supporting liquidity, enabling opportunity, and protecting against volatility.

When designed and executed well, it becomes more than finance. It becomes the framework that supports long-term confidence and control.

Our New Finance service helps businesses secure, structure, and execute the right funding — built to perform through every stage of growth.