Financial executives seeking to raise capital on favorable terms in the current market have rarely encountered a more attractive financing environment than the present one.

Record monetary and fiscal stimulus measures have boosted stock markets and pushed interest rates to historic lows. Seizing the opportunity for low-cost capital, U.S. companies issued bonds at an unprecedented scale last year andlaunched the most initial public offerings (IPOs) since 2014。

However, the loose funding environment this year may tighten slightly in the later period. The Biden administration's accelerated distribution of COVID-19 vaccines has strengthened market expectations for faster economic growth in the second half of 2021.

Optimism about the recovery pushed the yield on the benchmark 10-year U.S. Treasury note above 1% in early January, the first time since the outbreak of the COVID-19 pandemic in March 2020.The International Monetary Fund (IMF)raised its U.S. economic growth forecast for this year to 5.1% on January 26, a full two percentage points higher than its October projection.

Several financial executives said that before capital costs rise, many CFOs should consider revisiting their balance sheets, assessing whether they can adjust their debt and equity mix, and making other optimizations to their capital structure.

"There's an old saying: borrow when you can, not when you have to—and clearly now is a time when you can borrow," said Frank Williamson, CEO of Oaklyn Consulting, a middle-market investment bank.

"The number one thing I see in the businesses we work with is that capital is looking for a way out," added Williamson, who served as Chief Investment Officer (CIO) at Unum during the 2007-2008 financial crisis.

Every company needs to build a unique capital structure based on factors such as industry outlook, risk tolerance, and historical performance; there is no one-size-fits-all solution.

However, financial executives point out that during this period of high stock valuations and rock-bottom interest rates, companies of all types should consider a range of effective tools that can help raise debt and equity capital.

"When the window opens, you have to act," said Tom Raterman, CFO of Runway Growth Capital, a venture debt provider. "I would look at all available markets" and ask "is there an opportunity to enter markets we haven't been in before?"

Raterman noted that yields on asset-backed securities (ABS) are particularly attractive these days. He added that Runway Growth Capital may enter the ABS market in 2021, starting with small transactions.

Financial executives say that for startups with annual revenue of up to $50 million, revenue-based financing is quite useful. Such loans do not come with warrants, covenants, or other restrictions, and repayment amounts are set as a percentage of revenue. When the borrower's business thrives, repayments increase; when business slows, repayments decrease.

"For businesses with service operations and long-term contracts, this is really a good product," Williamson said.

Williamson said CFOs today should not overlook time-tested lending tools such as loan guarantees from the U.S. Small Business Administration (SBA) and the U.S. Department of Agriculture. "SBA loans are one of the greatest economic development tools the country has ever had," he said.

On the equity side, private companies are going public by merging with publicly traded shell companies—known as special purpose acquisition companies, or SPACs—thereby avoiding the time and cost required for traditional IPOs.

"It's quite affordable," Raterman said. "From the issuer's perspective, you don't seem to be giving up too much sponsor equity."

Investors typically fund a SPAC—also known as ablank check company—long before it identifies an acquisition target.

According toEYstatistics, the number and total value of SPACs surged last year: 248 offerings raised $80.9 billion, compared with 60 offerings raising $13.7 billion in 2019.

"With more new SPACs entering the public pipeline each month, and more to come, momentum in the SPAC market is expected to remain strong in 2021," EY said.

Regardless of which debt or equity instrument a CFO chooses, financial executives recommend following these five best practices:

Plan for a full range of scenarios

Given the unique combination of current market, policy, and economic conditions, CFOs need to consider how their capital structure will perform under both the best and worst outcomes for their business.

"Plan for the upside, but prepare for the downside," said David Magdol, President and CIO of Main Street Capital.

Following its two-day meeting on January 27, the Federal Reserve pointed to downside risks to the recovery and pledged to maintain record accommodative policies.

Fed policymakers believe growth could pick up later this year as vaccinations curb the pandemic. But the slow initial rollout of vaccines and recent signs of economic weakness could jeopardize the recovery.

"The pandemic continues to pose considerable downside risks to the economy," Fed Chair Jerome Powell said at a press conference after the meeting.

Scenario planning helped Runway Growth Capital mitigate the impact of the pandemic. Raterman said that before the virus emerged, the company had already exited deals that were vulnerable to escalating U.S.-China trade tensions.

Although the company's "crystal ball wasn't clear enough to foresee the pandemic," it still avoided losses, he said.

Williamson said CFOs also need to determine the impact of positive outcomes on the balance sheet.

"Outperforming an up market is no easier, or even harder, than cushioning against a down market," he said. "If strong tailwinds are coming and they haven't thought ahead about how not to miss them, they need to act now."

Extend debt maturities

Financial executives say that given the stronger growth outlook and the Fed's reluctance to follow European and Japanese central banks in pushing rates negative, CFOs should consider extending the average maturity of their debt.

"For companies in growth sectors, it really makes sense to look at existing venture debt and term loans that may still be in the interest-only period and extend the maturity," Raterman said.

Tell a forward-looking story

Williamson said many CFOs spend 80% of their time on accounting and internal controls and only 20% on financial planning and analysis (FP&A). Now is the time to devote more effort to FP&A.

Financial executives need to approach capital providers with a vision that goes beyond the disruption of a once-in-a-century pandemic. "Now is a good time to polish your realistic plans for the future," Williamson said. "Don't tell the story of historical data from the past 12 months."

Understand current or potential debt and equity holders

The stress and uncertainty of last year's sharp recession highlighted the importance of CFOs understanding the interests, motivations, and pain points of lenders and investors.

"Know your partners, whether they are existing debt participants, equity partners, or future partners," Magdol said. "Check how the rest of their portfolio is doing and what their capitalization looks like."

Answer calls from lenders and investors

Financial executives say CFOs should listen to credible capital providers across a broad range of markets.

Williamson said that if no attractive proposals emerge from such conversations, CFOs can at least stay informed about new developments in the market.

"Go answer the phone, because someone might be pitching something that ends up being a good deal," he said. "If you're not paying attention to the capital markets relevant to your business, you'll miss major opportunities."

Correction: A previous version of this report misstated the full name of Runway Growth Capital.