Pros and Cons of debt finance for #oil companies
For established companies and operators, bank financing is often a good alternative. It is generally the least expensive option, and the only “money cost” is the interest rate (which is relatively low) and any fees the bank may charge, reports the Oil and Gas Financial Journal.
When a company has valuable, broad asset base and low to moderate capital requirements, banks can be the best financing option. However, bank financing usually requires personal guarantees and the company’s assets pledged as collateral.
With many companies now ramping up their expansion activities, bank financing is overly restrictive. While the banks desire to maintain existing relationships with good customers, the collateral available to support their loans is sometimes inadequate.
Pros
- Relatively inexpensive financing
- Good for mature companies/operators that have valuable assets and are not growing rapidly
- Many banks understand the energy industry
Cons
- Banks often do not go far “out of the box” with financing structures
- Usually require personal guarantees from owners
- High growth companies or operators can miss opportunities due to restrictive loan requirements preventing advancing of funds
- Certain types of collateral, e.g. land leases, intangible assets and seismic, may be undesirable to bank
Full article can be found here
Are there more pros and cons you could add to this list?
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