I’m lucky enough to know some smart people. One of them is an excellent banker who has helped a wide array of people I know in obtaining financing and who also happens to be keen on keeping everyone abreast of measures for obtaining the relief that is presently anticipated by the different bills being passed.
Of particular importance to many breweries, wineries, bars, restaurants, distilleries, wholesalers, etc., is the current plan for SBA emergency loans and how businesses can prepare over the next few days to be in a good position to capitalize on them when they’re finally available. We’ll keep this page updated with the latest as we receive it from him, but here’s what he’s put together so far:
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The effects of COVID-19 will be felt by manufacturers in a variety of ways; from work disruptions, to supply shortages, and slow payments from customers. The virus will test the cash flow of every business, the following are a few ideas on how to prepare for that eventuality:
Explore Emergency Loans from the SBA:
In response to the emergency, the Small Business Administration (SBA) is directly making funds available to small businesses in order to help ease the economic impact. The terms available under the loan will vary by business depending on their need and the amount of economic damage suffered.
With the loans being made directly by the SBA, there are still several details pending. Based on the initial information released by the SBA, here is how the process will work:
- The U.S. Small Business Administration is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19). Upon a request received from a state’s or territory’s Governor, SBA will issue under its own authority, as provided by the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by the President, an Economic Injury Disaster Loan declaration.
- Any such Economic Injury Disaster Loan assistance declaration issued by the SBA makes loans available to small businesses and private, non-profit organizations in designated areas of a state or territory to help alleviate economic injury caused by the Coronavirus (COVID-19).
- SBA’s Office of Disaster Assistance will coordinate with the state’s or territory’s Governor to submit the request for Economic Injury Disaster Loan assistance.
- Once a declaration is made for designated areas within a state, the information on the application process for Economic Injury Disaster Loan assistance will be made available to all affected communities. (More information and assistance will be available locally through your SBA District Office and local Small Business Development Centers)
- These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses without credit available elsewhere; businesses with credit available elsewhere are not eligible.
- SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
For updates on the program, visit: https://disasterloan.sba.gov/ela/
The underwriting parameters are likely to evolve which is a reason to check back often, even if you do not believe yourself to be eligible at first. If you believe the capital to be helpful, it is likely best to review the program and consider your businesses eligibility early into the program. Based on the information available, this program seems designed for those businesses that do not already have access to credit lines.
Determining whether or not to apply has been a concern for many business owners. To that I would say if you believe there to be a potential that you need some short-term liquidity, apply. In a crisis, no one has ever complained about having too much liquidity. The worst-case scenario is that you have the cash on hand, do not end up needing it, and then repay the loan early at the cost of some interest owed.
Update Financial Statements and Projections:
Historical financial statements and projections outlining the cash need will be central to any loan modification or request, this includes the SBA’s Economic Injury Disaster Loans. Now is the time to get ahead of this requirement.
As you prepare cash flow statements, you should assume payments will be coming in more slowly than normal. Combining that with any cost reductions that can be made will allow for a better estimate of future financial health.
Speak with your Bank – Now:
Your current lender will be in the best position to assist with short term needs. Outside of the SBA and assistance available from your State, establishing a new lending relationship at this time will be difficult. Alternative lenders may be a source of capital; however, you need to be mindful of their repayment terms. Improving cash flow and access to capital are some of the most important measures any business can be making as they prepare for the road ahead.
The financial position and capital needs of every business is different. The following are a few strategies worth exploring that are some of the more likely forms of relief available at the moment:
Suspend Principal Payments on Term Loans:
- Using an amortization table, you can identify the portion of each payment going to principal each month. Modifying the loan to an interest-only basis will provide some relief on each monthly payment, by continuing to satisfy the interest that is accruing,
- A full deferral of both the principal and interest payment can prove difficult to obtain. By defining a specific period for the need and agreeing to service the interest, you place yourself in a better position to obtain the relief you are seeking.
Re-advance on Commercial Mortgages:
- Term loans have the advantage of creating equity in underlying assets as the loan is repaid. As such, looking to that equity can be a way of accessing cash in the short term. Depending on how your loan was documented, it may be possible to modify the loan without creating a new loan and a new set of documents.
- The fact that the mortgage loan is already in place and some collateral is available, this route may prove easier than establishing a mortgage filing.
Mind your Accounts Receivable:
- Every business is paying close attention to their cash and working capital positions. This will invariably lead to companies stretching their payables. While some extension is to be expected, business owners and credit managers must be mindful of customer balances and work to keep them in acceptable parameters. Offering small discounts in exchange for early payment can be a proactive way of collecting outstanding receivables.