With lower funding costs, WCG is now positioned to drive further profits in the years ahead.

Internet services group WebCentral (ASX:WCG) provided an important capital markets update this morning, after securing a major new funding facility from Commonwealth Bank (ASX:CBA).

The $16.6m funding deal will be comprised of a $15m loan facility, with a $1.5m bank guarantee and a $100,000 credit card facility.

And the new financing arrangements will allow WCG to repay a material portion of the loan it took out from 5G Networks (ASX:5GN), as part of 5GN’s strategic acquisition of the business in October 2020.

With a customer network of more than 330,000 small business clients, WebCentral has streamlined its business operations and cut costs while maintaining revenue growth through its core services in website hosting and design.

And since the acquisition closed on 10 November, shares in WCG have consolidated at a 200pc premium to their pre-acquisition trading price, as the company consolidates its business model while also expanding 5GN’s addressable market.

CBA funding

In that context, the deal with CBA is a testament to the strength of WCG’s operating model and credit worthiness, as both it and 5GN continue to reap the benefit of their joint operations.

“The CBA Debt Facility recognises the significant improvement to Webcentral’s financial position since 5G Networks took control of the company,” 5GN CEO Joe Demasse said.

He cited key metrics that were considered by the bank as part of the new financing arrangements, including strong cash flows and a return to profitability.

Importantly, the new funding model will also reduce WCG’s financing costs by introducing a lower rate of interest than the company was previously paying on its 5GN debt facility, the company said.

The CBA deal is for a three-year facility, at an interest rate 4.25% above the bank will swap rate.

The metrics of the loan are standard for a commercial lending facility of its size and term length, WCG said.

With consolidated funding arrangements and strong backing from 5GN, WebCentral is now positioned to continue its post-acquisition growth with lower costs and higher profits, commensurate with the significant re-rating in its share price since the deal was completed.

This article was developed in collaboration with WebCentral, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.