Preparing to Approach a Lender in the Coronavirus Climate

As discussed in our previous blog post, “Finding Small Business Capital in Tumultuous Times,” businesses can secure financing amid this crisis. In fact, it may be the very lifeline they need to successfully make it to the other side. While it is important to understand the various loan options right now, it’s also crucial to realize that banks will be posing questions with a different lens. Adequately preparing to approach a lender is extremely important. Borrowers can prepare for these conversations by earnestly considering how the virus has affected their current business model, and how they can pivot to stay successful moving forward.

If you are a small business owner contemplating a loan, review these potential questions that a bank may ask. Make sure you have honest, strong answers that you can confidently stand behind while you are preparing to approach a lender.

 

Impacts of COVID-19

  • How was your business impacted by COVID-19?
  • Was the business shut down, and for how long?
  • What measures did you or the seller take to navigate these financial or operational impacts?
  • What potentially long-lasting effects do you foresee for the industry as a whole?
  • Have you/the seller changed the business model since re-opening, or will you be changing the model in the near future?

 

Employees

  • Were employees laid off or furloughed, and have/will they be re-hired back? Please explain pre-COVID employee count versus post-COVID employee count.
  • Were any key employees let go and not re-hired? Please explain their roles and plan to operate the business in their absence.

 

Customers

  • Who are your business customers?
  • Is there any kind of customer concentration, and if so, are they still in business and/or how have they been impacted?
  • Has the business had trouble collecting on receivables?

 

Supply Chain

  • Has the production/supply chain been disrupted? Please explain pre-COVID and post-COVID.
  • With changes in the supply chain, do you expect profit margins to be affected?

 

Liquidity

  • What are your working capital levels, and how long do you expect this money to last?
  • Do any of the owners have personal liquidity they are willing to inject in the business to support operations? If so, how much?
  • Will additional working capital be needed with loan proceeds?
  • If this is an acquisition, please comment on working capital in the purchase price, if any.
  • Does the business currently operate with a line of credit?

 

PPP Loans

  • Did the business receive a PPP or disaster relief loan or grant?
  • Does the business expect the PPP loan to be forgiven?
  • If this is an acquisition, will the PPP loan be paid off by the seller prior to you purchasing the business?

 

The Future

  • What are your detailed business projections for the next 3 years? These should depict month-by-month data for at least 12 months, as well as contain detailed assumptions.

 

To access more information and best practices for helping your business succeed in the Coronavirus climate, visit our library of relevant resources. There you’ll find helpful downloads, guides and articles to help you navigate these uncertain times.