Business Liquidity and COVID-19
Liquidity is vital to riding our crises and times of financial uncertainty.
Business liquidity during times of instability is vital to longevity and ultimately, to survival. Having liquidity allows a business to continue to meet payroll and fulfill operating costs and expenses.
Here are a few ways to look for liquidity during this time of uncertainty:
Reduce Overhead Costs
The first place to look to remain liquid, is to reduce overhead. You can begin to reduce overhead by removing non-essential expenses, freeze all hiring, begin video conferencing rather than travel, working to take away part-time hours, or even as a final effort laying off part-time or non-essential salary employees.
Reexamine Current Loans
In order to manage your payments on existing loans you may need to negotiate new terms for the time being. Places to reconsider may mean refinancing debt, asking for reduced interest rates, negotiate interest-only options for the time being. Ensure that you are going to your lender with a plan to repay loans in the future as quickly as possible.
Government Programs
The CARES Act was signed into law on March 27, 2020. This law provides $376 billion to assist any workers or small businesses during this time. The act has created a few temporary programs to address the pandemic, including the Main Street Loan Program Paycheck Protection, EIDL Loan Advance, SBA Express Bridge Loans, and SBA Debt Relief. Check to see which program fits best for your business!
Financing Options
Look into options for payment extensions and increasing payable terms out to 30-180 days to give your company time to recover. Utilize additional financing companies to receive additional funding, which may offer better and more flexible terms than a traditional lending service. But may sure to review their total cost of the funds, as they may have higher rates and additional fees for the higher risk.
Use your Assets and Real Estate
By using your accounts receivable and your equipment as collateral you can get quick cash when needed. A lender who is asset-based will give financing based on your monthly accounts receivable. You can also utilize equipment as collateral for loans. In addition to using your equipment as collateral, you can also use your real estate. This process will likely take longer but could prove to be the best form of collateral.
Access Your Network
The people you know best may be the best option for receiving loans with the best terms. Ensure that you lay out a plan for repayment with terms and conditions as mixing your social network and business network can get complicated, but it can also be a great option.
Merchant Card Advance
A merchant card is a great option if you receive more revenue through credit card payment. With a merchant card you get an advance to cover expenses, while the merchant takes a percentage of future sales until the loan is eventually paid off. This option allows for easy access to funds, but tends to come with higher fees and rate, so read the repayment plan carefully and ensure you have a plan intact to repay the debt.
Private Equity
Private Equity trades cash for a stake in your business. This can be a great option in some cases, but with the wrong investor can get complicated. During a pandemic like this, you can ask for convertible note terms that allow you to refinance the note and protect ownership of your company.
As the effects of COVID-19 play out, new ideas for liquidity may be vital to the success of your company. Make sure to prepare your financial statements, ask questions, and negotiate when possible.
We’re all in this together.
Sources:
- https://www.federalreserve.gov/newsevents/pressreleases/monetary20200409a.htm
- https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp
- https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/economic-injury-disaster-loan-emergency-advance
- https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/sba-express-bridge-loans
- https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/sba-debt-relief
This post was reviewed by our team of accounting and financial experts. TGG’s mission is to make business owners’ lives better through excellent financial management. We strive to provide the most up-to-date and objective information on accounting-related topics so our readers can make informed decisions based on factual content. All posts undergo a review process with at least one member of our Leadership Team to ensure accuracy.
This post contains trusted sources. All references are hyperlinked at the end of the article to take readers directly to the source.
Matt Garrett is the Founder and Chief Executive Officer of TGG. He is a regular speaker across the country on behalf of Vistage educating business owners on the need for sound financial practices, and is Vice President of the Board of Directors of FINACA. Under Matt’s leadership, TGG has received the following recognition: INC. 5000 top companies in the U.S. five years in a row; one of “San Diego’s Fastest Growing Companies” the past four years; and is among San Diego’s “Best Places to Work.”
