Chief Financial Officers (CFOs) and treasurers face mounting pressures to manage near- and long-term funding needs. To better navigate an increasingly dynamic environment, they are turning to an alternative funding solution that can offer greater control and flexibility in borrowing while strengthening a company's balance sheet.
Facing Cost Pressures
Following the post-pandemic surge — in consumption, inflation and interest rates — financing costs have become materially more expensive for corporations. Tighter monetary policy and a growing set of geopolitical risks further complicate near- and long-term financial planning, leaving management teams to balance investment in future growth with the need to manage borrowing costs.
The strain is most pronounced in capital-intensive sectors, where interest expenses grew at more than twice the pace of revenues since 2022. Combined with higher operating costs, this has reduced the cash available to service debt, with interest coverage ratios down 30%, on average, since 2021 (Figure 1).
Figure 1: Interest Coverage Deterioration: U.S. Corporate
Source: BNY Analysis of data from CapIQ, sampling includes approximately 1,118 U.S. corporates.
This challenge becomes even more prominent when considering planned investments for artificial intelligence, the need to transform global supply chains, as well as the cost to refinance "cheap" corporate debt maturing in an environment of higher borrowing costs. (Figure 2).
Figure 2: Corporate Debt Maturity Schedule
Source: BNY Analysis of data from CapIQ.
The Era of On-Demand Capital
CFOs and corporate treasurers exploring financing strategies beyond the traditional playbook are increasingly turning to demand notes, a funding tool with more than 60 years of history. First pioneered in the auto sector and used by the likes of Ford Motor Co. and Mercedes-Benz, demand notes enable companies to source capital from their customers, employees, suppliers and existing investor base, providing an attractive alternative to traditional debt.
The inherent control corporate finance leaders gain through a modernized demand note program have made demand notes attractive to a broader range of companies, particularly amid heightened volatility and uncertain market conditions.
KIM Research Team
Versatile by design
For a corporate issuing demand notes, the advantages extend beyond circumventing the rigidities of traditional debt with fixed maturity schedules. The open-ended structure of a demand note program frees issuers from the underwriting and re-issuance fees typically associated with public debt offerings. By raising capital directly from investors, issuers can save on intermediary costs associated with traditional borrowing vehicles, which has the potential to significantly benefit the bottom line.
Figure 3: Flexible Financing for Corporates with Demand Notes
Public vs. Private Demand Note Programs
At the outset, the issuer must decide whether to offer their note program as a public offering or private placement. At the core of both public and private programs is a flexible, short-term funding solution — but program types differ in structure, regulation and overall strategy.
Figure 4: Reporting Considerations For Demand Note Programs
Turning Insights into Outcomes that Scale
For corporate finance leaders aiming to get started with demand notes, establishing an analytics-oriented approach should be viewed as fundamental in the successful promotion and growth of the program. As a demand note program matures, investor data can reveal valuable patterns in balance volatility, concentration and responsiveness to market conditions. Extracting and acting on these insights is central to improving pricing efficiency, optimizing funding costs and strengthening long-term participation.
Figure 6: Identifying a Demand Note Program Investor
