Financing Uncertainty

By Joe Santucci, Brook Capital Consulting, ©2020

How to think about business operations when no one knows how long the COVID-19 funk will last.

Congratulations to businesses involved in surgical mask production or teleworking technology.  You’re in the right sector to thrive while the coronavirus, or COVID-19, crisis plays out.  But for businesses that need to close their doors or slow operations in an unprecedented way because of mandated shutdowns and gathering limits, you may need a contingency plan and some financing to make it to the other side of the revenue gap.  We’ve received many calls from business owners wondering how they can survive the COVID-19 crisis and where they can find money to make it through.

The challenge isn’t that there are no lending options out there.  The challenge is what to do first and which business financing option to choose.  It’s all about “best-fit” financing for each particular business.  And determining best-fit starts with a strategic framework.

First, decide on a timeframe.  Adapting business operations because you anticipate two weeks of lost revenue is different than adapting operations for six months of closure.  For example, a local 12-screen cinema closing for 14 days under a federally ordered shutdown may have enough cash on hand to cover costs for that time, but closing for two months may require the cinema to borrow working capital or obtain a larger business line of credit (LOC).  Be realistic.  The President, during his press conference on March 16th,  mentioned the virus may run its course as early as July or August, but it could be longer.  Anticipate that revenue will ramp up slowly once customers return, which will extend your timeframe.  We think that choosing a timeframe, even if you miss the mark a little, is better than “taking it day-by-day.”  You will be more efficient with cash, and you’ll have deliberate answers for your clients, vendors, and creditors.  

Next, plan your contingency actions in order of survival, sustainment, and advantage.  Here’s what we mean…

Survival actions are about cutting costs as much as possible—and this is usually instinctive for business owners.  You may furlough employees, offer reduced-pay leave, or temporarily stop orders of goods and services.  Obviously, the more costs cut, the longer your business can weather a revenue gap.  If you’re leasing a location, talk with your lessor about modifying the contract terms or execution to your mutual advantage.  Some businesses were able to delay lease payments or extend leases by 30 days during the economic downturn of 2008.  Get creative.  This may be the perfect time to reconsider your credit and debit card processing and look for lower-cost alternatives who deliver the same quality of service.  Asset-based lending can provide you cash against your accounts receivables, inventory, or equipment.  Merchant cash advances, if you need them, are a tool to acquire cash in just a couple of days in order to pay the bills and make payroll.

Sustainment actions will keep your business “warm” and ready for when customers return.  United Airlines, for example, is changing how it cleans its aircraft so as to reduce the possibility of infection to its passengers and present air travel as a lower-risk choice to potential customers.  Sustainment includes choices you make about preserving inventory, training certain key employees, or continuing to service equipment when necessary.  Sustainment, in the context of COVID-19, is an art.  To wit, if you’re a marketing company, it may make sense to continue to stockpile content for clients because they will need to compete for customers’ scarce dollars as the crisis subsides.  To fund these choices, the Small Business Administration (SBA) is providing a disaster loan program that offers qualified businesses low-cost loans to span the crisis.

Advantage means finding the opportunities for your business while the crisis is in full swing.  Advantage actions set you up to be more competitive than you were before COVID-19 crisis.  Such steps are last in the hierarchy of contingency actions because they require some risk, a little cash on hand, and will take time to help increase revenue or market share.  A great example is the opportunity in the Federal Reserve’s response to the recent stock market turmoil.  Since key interest rates are at historic lows, now may be the right time to refinance property loans, acquire new commercial property, or embark on new equipment leasing where it makes sense.  Be sure to choose the right type of financing for your property.  SBA 7a or SBA 504 financing might make sense.  You may also choose to start offering consumer financing options to your customers while rates are bottomed out to help them purchase your products.  What about your teleworking software and security suite?  It may be time for an upgrade or technology that better fits your business model.  And because everyone is at home and online, now may be the time to invest in an aggressive marketing campaign to gain more visibility. 

Finally, write down your “RTB” or “Return To Business” plan.  What indicators will inform you that it is time to flip that “Closed” sign back to “Open”?  When will it be smart to start making products and delivering services, invite employees back to work, and restart inventory and transportation spending?  At the top of the indicator list should be the stabilization and reduction in the spread of COVID-19 cases within your geographic area of concern, the resurgence of travel, and gradual return to social activity.  A conspicuous rule of thumb:  reopen your business when customers reappear and demand begins to rise.  Importantly, make sure to monitor federal and local government websites to ensure you’re not too early and, therefore, violating closure mandates or gathering restrictions ( is a great place to start).  

Having a framework like the one described above will help your business navigate the COVID-19 crisis successfully.  And knowing where to find best-fit financing is key to helping you execute your plan over the next few months and keep your business stepping forward.

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