What happens if the financing decision is wrong?

Financing decisions have to be made before anyone knows how conditions will develop. The question for a CFO is not only what the plan expects, but what happens if it doesn’t arrive.

Picture the finance director of a trading business on the Thursday before a financing decision. The paper is ready. The requirement is understood, the economics are modelled, and three sets of terms have been compared. One structure fits the plan better than the others, and the business is keen to go.

The CFO reads it through once more, and then asks the question that isn’t in the paper: What if we’ve got this wrong?

It isn’t a criticism of the forecast. The forecast is good. But the decision has to be made before anyone knows exactly how conditions will develop, and the structure on the table rests on a view of each of them, from trading volumes and working-capital cycles to cash generation, the timing of funding and the markets the business trades in. Against the base case it is perfectly reasonable. Whether it suits the conditions that actually arrive is a different question.

What the number doesn’t say

The first thing that becomes clear is that being wrong isn’t one thing. If the business has overestimated what it needs, it will carry capacity it didn’t need, with unused lines, additional cost and constraints it didn’t have to take on. If it has underestimated, the risk is liquidity pressure, activity held back, and too little room to respond just when it is needed. Neither is a disaster on paper. But they are not mirror images, and which one the business can absorb more easily depends on the business. A plus-or-minus ten per cent sensitivity would treat them as if they cost the same. They don’t.

The second thing is that the number is only half the story. Say working-capital needs rise by £20m. If the cause is strong growth, the business is selling more and the question is how to fund a good problem. If the cause is a delayed shipment or slower collections, the same £20m means something quite different, with cash tied up for reasons that may persist, may reverse, or may bring other problems along with them. The figure is identical. The economics, the risks and the right response are not.

A good scenario tells management not only what has moved, but why it moved and what else is likely to move with it. That is the difference between a sensitivity and something a CFO can act on.

What flexibility costs

This is the point where flexibility starts to look attractive, and where it deserves its hardest look.

Flexibility isn’t free. It can mean committing more capacity than today needs, paying fees on facilities that go unused, accepting different terms, paying for extension rights, or holding headroom that may never be called on. If conditions stay close to plan, some of it will never be used. But too little flexibility has a price too, and it tends to arrive when conditions have moved and options are scarce.

So, the question isn’t whether flexibility has value in principle. Of course it has. It’s when it would matter, what it would allow management to do, and whether that is worth what it costs. Paying more for flexibility isn’t sophisticated by default. It’s a judgement, and it should be made like one.

A real example shows what that judgement can look like. In June 2025, Addax Energy, the trading arm of Oryx Energies, renewed and increased its committed unsecured revolving credit facility to US$220m. According to the company’s announcement, the facility was initially substantially oversubscribed, attracting 19 banks, and Addax scaled commitments back to match its financing requirements. The structure still includes an accordion that allows it to grow to US$250m, and a 364-day extension option.

We don’t know why management chose each element, and the economics of those features haven’t been made public, so it would be wrong to call it the right decision or to say it saved anything. What it does show is the shape of the choice, with capacity committed to match today’s requirement, with ways to increase or extend it if tomorrow’s looks different. How much to commit now, and how much ability to adapt to preserve, is a question every CFO faces in some form.

Before it can’t be undone

There is one more question before the paper goes forward, and it is about the way back. A choice that can be changed cheaply and quickly is a different thing from one that locks the business into constraints that are slow or expensive to unwind. So, when would we know our assumptions were wrong, and what would change first? Can the facility expand or contract? What would amending or replacing it cost? What collateral or capacity would already be committed, and what choices might no longer be available by then?

The less reversible the decision, the more carefully its downside should be understood before committing.

None of this means distrusting the plan. The base case still matters. It simply stops being the only case that has to be taken seriously. Doing that well takes modelling, corporate finance judgement and a planning discipline that keeps the plan and the decision connected.

The structure on the table may well turn out to be the right one. The difference is that the decision is now made against more than one future.

At TriFidus, we believe financing decisions should not be judged only against the outcome management expects. Good financial decision-making also asks what happens if those expectations prove wrong, and whether the business will still have room to respond.

Let’s discuss what challenges you’re navigating.