Wolf & Company was engaged to perform an annual financial statement review of a family-owned, high-quality food company that was headquartered in a manufacturing, distribution, and office facility owned by the family. Within the scope of the financial statement review, Wolf analyzed debt and debt-related ratios. Wolf noted that the client’s interest expenses looked appropriate at about 6% of its average debt balances for the year given that its mortgage, the most significant of its notes, carried a fixed interest rate of 6%. While the analytics indicated that the accounting was correct, Wolf’s team felt that the company could be doing better on its interest expenses and saving significant money on its mortgage.
Wolf’s exposure to debt across a wide range of companies in the current lending environment suggested that the client’s 15-year banking relationship, flawless debt service, strong financial statements, and the first mortgage on the underlying real estate might warrant a better rate.
Leveraging its relationships, Wolf called a commercial lender and discussed the company’s scenario. The lender was happy to oblige and suggested that a rate closer to 4% could likely be attained in the current environment under the scenario outlined by Wolf. Wolf quickly advised the company’s management that now was the time to leverage their positive, longstanding relationship with the bank to ask for a better rate.
The bank rewrote the loan, reducing the rate by almost 2%. This rate reduction represented a savings to the company of more than $200,000 over the life of the loan. The opportunity was identified in the course of carrying out the financial statement review, meaning there was no charge from Wolf—the savings went straight to the bottom line.