By Christopher W. Peer, Esq. and John A. Polinko, Esq.
These are unprecedented times. Coronavirus has created significant market volatility in addition to the health crisis. If you are in grocery, pharma or healthcare, opportunities abound. If your business is entertainment or non-specific manufacturing, times are very tough.
No matter how unfamiliar this "new normal" is, it is not a time to panic and throw in the towel. It is a time to consider the economic landscape. Business owners should take stock of where their business is (geographically, operationally, economically) and look at the myriad of alternatives that may be available to them. In short, it is time for a plan, and one that contemplates re-ignition of your business after the crisis is over. Industries are being affected in different ways; what is "essential" and what is "non-essential" seems to be the line of demarcation. If your enterprise is "essential," your challenges are likely focused on how to get everything done. If your operation is "non-essential," it is likely you are trying to figure out ways to survive without default or worse. Of course, the worst of all of this is that the crisis is not caused by any business decision that you may have made; rather, your ability to operate may have been determined by the Department of Health.
But it's not just the business owner, it's also the lending community. For lenders, it's not as simple as an underperforming business; rather, it is a business, or businesses, that, through no fault of their own necessarily, are facing a short-term and significant drop in revenue. At a minimum, cash flow will likely be a struggle for many over the next few months. How you manage cash may be critical to your success and survival.
Second only to cash is communication. Specifically, communication of your situation and plan with your lender. Make certain you are in control of the message, honestly, responsively and responsibly. Strategic communication is key to building rapport and trust, and ultimately to maintaining and keeping relationships on your side to help you complete and effectuate your plan.
How is a lender to react? The prevailing thought seems to be the lenders will work with borrowers, whether through limited forbearance arrangements, possibly including interest-only payments, or full moratoriums on monthly obligations. Undoubtedly, banks and lenders are evaluating all their options, and while no one wants to be the "bad guy," lenders do have regulators to respond to, and borrowers who are unprepared will undoubtedly get caught in this unexpected storm.
Again, for any business owner, the very first thing to do is open communications with your lender. Show the lender you recognize the problem, acknowledge your obligations, and that you want to work with the lender to reach a short-term resolution or arrangement. From our experience, this information sharing and openness establishes credibility and goes a long way in maintaining the lender-borrower relationship. Know what you need to survive and emerge post-crisis, and tell your lender what you need now, how it will help bridge and gaps and without question, tell your lender how you plan to pay them back. Discuss alternative means for short term availability of funding, whether with the lender, or potentially through governmental resources – most notably: (1) the SBA's Emergency Disaster Loan Program, and (2) further sourcing being considered by Congress (as of this writing) opening potentially $2 trillion in funding for programs to assist businesses (large and small), projects and workers.
While everyone sees how this extraordinary situation is impacting them individually, it is the collective impact on all that causes such damage in the market. The path that will ultimately lead to recovery will necessarily include businesses and lenders working together to find solutions. Communication is the key to this solution.
The banking and finance lawyers at WHP have been answering these questions frequently and encourage all to contact counsel at WHP to help navigate questions and solutions.
This article provides an overview and summary of the matters described therein. It is not intended to be and should not be construed as legal advice on the particular subject.