Financial Overview

covid-19: What's next?

By: Bill ruckert, provident bank

The COVID-19 pandemic has affected all of us, and I hope that you, your families, and your businesses are safe, healthy, and well. When asked to prepare an article for this month’s issue, I wanted to take a different approach, but include what is hopefully valuable information as 2020 draws to a close and we anxiously look forward to 2021.

While uncertainty prevails and predicting the future is unreliable, let’s start with what we know. Government support in the form of PPP loans was very beneficial and helped many companies during the initial business shut-down period. The forgiveness process is still being refined, but revisions made to the program by the SBA have largely benefitted borrowers. Bank loan deferrals have also been fortuitous and enabled companies with tight cash-flows to deploy funds elsewhere. Lastly, the financial crisis of over a decade ago (can you believe it’s been over 10 years?) caused many companies to de-leverage their balance sheets, alleviating what would have otherwise caused additional cash flow pressures.

While this data is typically helpful in predicting the future, COVID inhibits business owners’ ability to make reasonable and accurate projections. What is foreseeable, though, is the need to satisfy PPP loans through forgiveness or repayment. Either way, this source of capital has been a windfall of sorts to companies, but should any portion need to be repaid, 1%, five year, unsecured, unguaranteed financing is very attractive.

Having said that, PPP loans are likely to be reported on fiscal year-end 12-31-20 financial statements serving to violate various loan covenants if they haven’t done so already. Unsettled economic conditions will also strain a company’s financial performance, which could have a detrimental impact on loan covenants. What to do? Clearly COVID responses are not a onesize-fits-all solution.

Some industries have benefitted from the pandemic while others have been decimated. It is likely to have a lasting effect on many markets including real estate, retail, wholesale, logistics, and education, to name just a few. Companies that have thrived will be uniquely positioned to grow market share and make strategic acquisitions. Struggling businesses must make critical and very difficult decisions about market segments, lines of business, occupancy costs, and, most troubling of all, head count. Regardless of your situation, the most important tool business owners have is open and active two-way communication with their financial institution.

Banks need to respond to their clients’ needs as the year winds down and future capital requirements or modifications are discussed. Business owners can easily detect red flags from their bankers. Extensions on lines of credit, rather than renewals, can be an alarming indicator. Delays in receiving covenant waivers are also a warning sign. Lastly, unresponsiveness from your banker indicates unclear direction provided by the bank, reduced credit availability, or a lack of understanding of your company’s needs.

COVID too shall pass, just as other economic disruptors have over the years. All is not lost, and opportunity rests on the horizon. Business owners must consider ways to reinvent their companies as others have been doing. While a forbearance agreement or a troubled debt restructure may sound daunting, when negotiated in good faith by all parties, their structures are intended to satisfy the borrower’s needs as well as those of the bank. They can provide temporary relief as a short-term solution and revert to a mutually agreeable credit agreement in the future.

Preparing for the worst and hoping for the best are needed as we look forward to the end of COVID. This cliché remains appropriate after so many years. There are many solutions for what we face, and with it comes opportunity. Embrace it!

Hopefully this information provides some helpful hints as we thankfully wrap up 2020. Quoting Jerry Garcia seems quite suitable here: “If I knew the way, I would take you home.” Good luck, God bless, and be safe.

Congratulations to Jim Coddington, recipient of the Robert A. Briant, Sr. Award; Hank Dobbelaar, recipient of the Larry Gardner Memorial Award; and Ed Nyland on his induction into the NJ Construction Industry Hall of Fame.

Wm. J. Ruckert, III Senior Vice President (732) 800-0544 Bill.ruckert@provident.bank

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