Liquidity Planning in the Age of Pandemics
By Jeff Bardos, CEO, Speritas Capital Partners (Jeff’s Bio)
June 2020 – Originally published in Newsline, the Magazine of the National Equipment Finance Association, May/June 2020 issue, page 22.
The severe economic impact of COVID-19 has reinforced the old adage that ‘cash is king.’
Businesses with sufficient cash to weather this storm stand a better chance of survival. And those with strong liquidity contingency planning and liquidity forecasts stand the best chance of having the cash to survive both this and the next crisis.
How many businesses, including equipment finance companies, had liquidity contingency plans in place at the start of the pandemic? Not enough, apparently.
Best-in-class liquidity management incorporates both the income statement and the balance sheet in a two part process. Analyzing the timing of cash inflows and outflows is one part. The second part is understanding what assets, including equipment, can be financed or refinanced to extract working capital.
This integrated approach is not easy – good accounting systems can help – but any business can create a useful liquidity forecast and contingency plan.
How Does the Paycheck Protection Program (PPP) Fit into Liquidity Planning?
Realizing that many small and medium sized businesses would be forced to lay off or furlough employees, the Federal government created the Paycheck Protection Program (PPP) to help cover payroll costs.
Despite huge growing pains, the PPP program delivered $600 billion to (mostly) small businesses. Demand for the program was literally overwhelming. In the end, the program undoubtedly preserved a large number of jobs, at least in the short term.
Businesses that took the maximum PPP loan amount generally received loans equal to 2.5 times their 2019 average monthly payroll costs, including benefits. Any payroll costs incurred over the two-month period following the loan closing may reduce the amount which has to be paid back.
The “forgiveness” documentation requirements between the borrower and the lender and between the lender and the SBA needs further definition. View information from the Small Business Administration on PPP Loan Forgiveness Rules and applications here.
The extraordinary demand for the PPP program speaks in part to the thin cash cushion with which most businesses operate. The demand is also a reminder of the importance of cash flow and liquidity management to financial survival.
Lack of liquidity drives more businesses into bankruptcy than insolvency.
Speritas Capital helps clients assess their options in an unbiased way. We are independent and have access to a wide range of financing options. And we never take up-front fees. Watch our video overview.
Call or email me directly to discuss your specific issue or situation: firstname.lastname@example.org | 203-247-4358.
Interested in learning more about additional COVID 19 financial relief efforts for businesses? Read our previous posts:
1) Look Beyond Paycheck Protection Program Loans
2) Three Critical Financing Steps to Take Now During the Coronavirus/COVID 19 Crisis
3) Planning for Economic Weakness as a Result of COVID – 19 Disruptions
About the Author
Jeff Bardos, CEO, Speritas Capital Partners
Jeff has over 25 years of experience in the financial services industry. After graduating from the Columbia Business School, he joined the New York Federal Reserve Bank as a senior staff member in Bank Supervision, leading the Bank Analysis department. From the nation’s central bank, Jeff moved into the private sector, working at senior levels in commercial banking, retail banking and risk management. He has also played senior founding roles in several start-ups. Learn more about Jeff.
About Speritas Capital Partners
Greenwich, CT based Speritas Capital works with small to lower middle market businesses and commercial real estate investors to provide financing solutions for difficult credit, collateral and cash flow situations. We have relationships with over 90 national lenders and private investors that give us the product breadth to assist clients in identifying funding options that go beyond what a traditional lender can typically provide.
We can arrange financing for a wide range of products: asset-based lines of credit, accounts receivable finance, purchase order finance, equipment finance, SBA and USDA guaranteed loans, Fannie Mae/Freddie Mac loans, FHA/CMBS loans, and bridge/construction and permanent commercial real estate loans.
Speritas Capital Partners specializes in difficult credit, collateral and cash flow situations and we never take upfront fees.