Thanks to online accounting systems it is now possible to monitor a business’ performance on a regular basis. Thanks to a middleware interface, we can automatically retrieve top line trend information and reports, without needing to ask for management accounts or outdated end-of-year accounts.
This helps strengthen the relationship between lenders and borrowers. By showing lenders that the business is continuously trading profitably, lenders know their debt will be repaid in a timely manner. Also, if the business starts to under-perform a lender can sell the loan part onto another lender who may be willing to take a higher risk. It makes it easier to take action before the business experiences any distress.
On (or soon after) the 7th of each month, we query the accounts system for Balance Sheet and P&L information. But we only relay trend performance information.
Changes in the performance of the business can inform to sell on the loan part or (if applicable) convert the debt to equity. It also lets you know when it’s a good time to help/support the company you have invested in.
By keeping lenders informed about your performance they have more of a relationship with you, are more supportive and engaging. Furthermore, they perceive less risk from businesses that allow LPT (because they can take action in the event of underperformance), thus are often prepared to lend at reduced interest rates.
With LPT, lenders can see and understand that a business can find itself in a situation where it would be better to convert the debt to equity, thus it allows debt to equity conversion as a form of security.