Losing funding is devastating to a business at any time, but the ongoing crisis created by the COVID-19 pandemic has shaken up banking on a massive scale which makes keeping your business functioning financially even more difficult. We already know government programs like the Payroll Protection Program (PPP) were given out on a first-come, first-served basis and many small businesses were left out in the cold. Even with subsequent rounds of funding, many businesses were unable to qualify for various reasons including, in some cases, their banking relationships.

Other businesses were faced with being notified by their financial institutions that lines of credit were being suspended, small business owners who were depending on their home equity to take a line of credit were found those lines were suspended, and still, others learned banks were not accepting new applications for loans. Where does this leave business owners who need capital to maintain their current business operation or to expand their operation?

Why Financials Institutions Are Decreasing Their Lending Availability

The COVID-19 pandemic has financial institutions making changes in how they do business.  One of the more prevalent trends we may see are financial institutions taking measures to counteract increased risk with their lending practices.  There are specific reasons behind this change including:

• The continued economic fallout from COVID-19 – banks do not like uncertainty and lending in today’s environment can potentially be riskier than ever because they are not able to accurately predict the continued economic challenges which commercial and retail clients may face.
• Liquidity issues – financial institutions are not free from the economics of COVID-19. Many are facing their own issues with reduced liquidity making to fund extensions of credit and renewals of revolving lines of credit.  In certain situations, capital may only be allocated to the most profitable business loans.  They will be ready to shed under and non-performing loans.  Banks may also be minimizing their exposure to nonessential lending services (such as investment banking, international expansions, etc.) that consume considerable amounts of capital.
• Risk assessment standards – portfolio risk thresholds are being reassessed.  Financial institutions have or will be, implementing more stringent underwriting standards and tightening their policies for extending credit.  This makes it harder for small businesses to secure new financing or renew their current facility.  The historical financial performance of their clients and other previously relied upon metrics may no longer be relevant risk indicators.  

These factors and others impacting financial institutions mean business owners need contingency plans to access the capital they need. Business owners also need to be prepared for potentially losing an existing line of credit when they need it most. While this is important DURING the pandemic, the same could be true for any time your funding lines are interrupted.

Finding an Alternative Funding Source for Long-Term Success

Given these challenges, more businesses are finding they fall outside the acceptable risk threshold to access and retain lines of credit as well as more traditional business funding.

When faced with financial demands or an opportunity to expand operations, some business owners may feel pressured to reach out to private investors and offer a piece of equity in their company. There are other options businesses can consider including working with vendors to extend credit terms, taking out a personal loan, or invoice factoring.  Each has the potential to provide you the capital you need on relatively short notice.  Joseph Ingrassia, the Managing Member for Capstone Capital Group, LLC, provides insight and points of consideration for each in a recent Forbes Expert Panel article on Funding Your Business with a Personal Loan? 14 Things to Consider First and also in Emergency Business Funding: A Look at Your Options.

Business owners should avoid taking steps that could damage them financially. For example, these include hard money lenders, credit card advances, and merchant cash advances (MCAs). These options may be available to you but in the long-run, they could harm your business financially as they typically come with high-interest rates and will create a never-ending cycle of debt.

Converting accounts receivable to immediate cash through invoice factoring makes sense from a practical point of view. Here are some of the reasons why this option is a good one:

• No new debt on your balance sheet
• No need to give up equity in your business
• Personal liability is limited
• You have control and flexibility — factor all your invoices or only specific ones
• The fastest method of obtaining cash for your immediate business needs

While banks may prefer to lend to businesses with only positive financial performance, stable cash flows, and predictable revenues, factor companies, such as Capstone, can often work beyond these issues and provide funding based on the quality and strength of a business owner’s accounts receivable.  Also, businesses often turn to invoice factoring for their cash flow needs as the approval process is simpler and faster than the underwriting process at a bank.  That means businesses have quicker access to crucial working capital. 

This is one option, among others that we can help establish to help your business meet your financing needs. Capstone continues to be a leader in developing customized plans for businesses in a wide range of industries to help them meet their capital needs. Whether you are currently facing uncertainty in your funding, or you want to have a plan in place which eliminates the need to take on new debt from your bank, contact Capstone by email at [email protected] or call us at (212) 755-3636. Let us help design a customized financing package that works for your business.

Businesses that have been producing and supplying personal protective equipment (PPE) are facing numerous challenges since the pandemic began in the United States in early 2020. In addition to facing unprecedented demand for their products, they were also facing problems with shipping thanks to travel and export bans, and concern for the health and safety of their workforce.

For some businesses, none of these was the most significant challenge — the biggest challenges came in two phases, the first obtaining raw materials, and the second having sufficient working capital on hand to ensure they could ramp up their production to ensure they can meet the demand for finished products.

Meeting Challenges Needed to Successfully Deliver PPE

Some of these challenges have continued. In fact, as recently as August, there are still ongoing reports of shortages of PPE for healthcare workers. In part, this is because no one planned for a need of the amounts of PPE which would be needed — today, not only healthcare workers, but daycare centers, schools, offices, and restaurants are also in need of PPE. This need is likely to continue well into the end of 2021 given it could take that long to get vaccines distributed and administered to larger portions of the population of the United States.

For those businesses who supply PPE finding the balance between maintaining open supply lines and ensuring they can meet demand while building inventory for future demand can be challenging. The challenges range from being able to obtain raw materials and ensuring they have the logistics set up for delivering the products they are manufacturing. This may involve the need to not only have a sufficient amount of capital on hand to purchase raw materials but may also require a company to review how they currently receive raw materials and deliver completed products.

COVID-19 Impact on Manufacturing Overall

In a broad report released by Thomasnet.com® we learned just how challenging manufacturing been since the beginning of the pandemic. Some of the statistics show:

• 46 percent report shipping and logistics disruption
• 35 percent face production restrictions in offshore factories
• 8 percent cite an increase in the costs of goods

Those who are manufacturing and supplying PPE must be prepared for this “new” normal and prepare for these challenges during 2021 and going into 2022. Demand is likely to continue in industries that once never called for PPE including restaurants, school districts, and smaller business owners including hair and nail salons, and more. This is an opportunity to grow your business if you have the financial plan in place to take advantage of the increase in demand.

Securing Funding to Fulfill Contracts

With demand for PPE continuing to escalate, businesses must have sufficient funding to source the PPE items from third-party manufacturers or to secure raw materials if you manufacture products in-house. Those with contracts can either take out a loan, impacting their balance sheet, sacrifice equity in their company by raising funds from outside sources, or they can opt to leverage purchase orders and invoices for cash.

Many large users of PPE including government municipalities, hospitals, and school districts order supplies using purchase orders (POs). In effect, these purchase orders are a contract between you and the other party stating they want to purchase a specific amount of PPE by a certain date. You must be prepared to deliver this product while understanding that upon delivery, it could take as long as three months, and in some cases longer, for you to be reimbursed because a payment has been made. One of the most critical financing tools you can have at your disposal in these cases is purchase order financing. Not only will you have access to secure the necessary capital you need to purchase supplies or raw materials, but you also have the opportunity to develop a reputation as a business that fulfills orders in a timely manner. This alone can help fuel your growth.

Smaller PPE contracts for facilities such as nursing homes assisted living facilities, and restaurants may order smaller quantities of materials. Generally, you can fulfill their needs from inventory provided you have been able to maintain inventory. However, even in these cases, you may not receive payment for your products until 60 to 90 days following delivery — leaving you with insufficient cash flow to replenish your inventory. Invoice factoring can help bridge these cash flow gaps.  Factoring allows you to supply products to your end customers, and when it comes time to issue them an invoice, you can use factoring to convert the account receivable into immediate cash. 

Whether you need immediate capital to fulfill an existing purchase order, need cash to replenish your dwindling inventory, or are facing challenges with supply lines, you should consider contacting Capstone. We offer an entire suite of financial tools designed to help you succeed. Call us at (212) 755-3636 to speak with a representative today and let us help find a solution that works best to meet your current challenges.

There is little doubt 2020 presented unique challenges for business owners. Across the United States, thousands of business owners were faced with rolling forced shutdowns, others had to adjust to fewer employees in their workspace, and still, others faced the potential of closing permanently.

Business owners that were lucky enough to have their business survive 2020 must now take stock of their past year’s financial performance to determine the goals that will set them up for success as they navigate the next twelve months. 2021 will not be just another year. The recent rollout of approved vaccines is good news for everyone. This is important because it will play a role in businesses getting back to financial “normal” and how we set our goals for 2021. Here are some of the things you need to consider when evaluating your 2020 performance and prepare to establish your goals for 2021.

Evaluating Your 2020 Goals and How You Adapted to Challenges

Chances are you first laid out your business plan for 2020 with certain projections, goals, and benchmarks which were quickly thrown out of the window at the first onslaught of the pandemic. Looking back on 2020 as a whole may have you feeling somewhat defeated. However, it is important to put the year into perspective. Since March of 2020, nearly every business owner has faced financial challenges due to the impact of the pandemic.

Those businesses who were able to stay operational because they could have their staff work from home were forced to increase spending on technology to use at home. Others were facing serious reductions in orders resulting in less income. Some businesses were faced with increased spending while grappling with decreased income while finding it necessary to invest in personal protective equipment to allow their operations to continue.

For some small businesses, the Paycheck Protection Program (PPP) was a lifesaver. For those businesses who did not qualify for PPP, some are looking at their bottom lines and seeing a sea of red. It can — and will — get better if you put everything into perspective and prepare your plan for 2021. The message here is simple: Do not let the setbacks of 2020 cloud your vision for 2021. The time to prepare for 2021 is now and you want to set a realistic set of goals while keeping in mind the challenges you will likely be facing. Here are some steps you should be considering:

Understand the Landscape of Business

One of the factors you will have to evaluate is what impact COVID-19 will have on your business entering 2021. Even with vaccine distribution beginning, chances are your industry will face some impact from slowdowns either from your vendors or customers. While it may be challenging to accurately forecast the impact, make sure you have some plan in place for any slowdowns in distribution chains, manufacturing chains, and supply chains.

Businesses will have to face head-on the new reality and set their financial goals for 2021 based on what they know today — however, this also means many will be forced to reevaluate those goals should the landscape of business change. Ensuring financial stability in an uncertain marketplace will require businesses to address their finances in a way that is flexible. Developing a financial plan that allows for change as the market changes will be the key to continued success during 2021.

Preparing Financially for 2021

Naturally, one of the biggest factors for 2021 will be the capital needs of your business. Chances are your business may also be facing additional operating and overhead costs in the new year which have to be dealt with. Some ways to help you prepare to include:

• Know the figures – have you accounted for all your financial activity in 2020? What are your profit margins and break-even points? Do you know the balances owed on all outstanding debts or balances owed to you?
• Identify areas for business growth – determine if you have maximized revenue and profitability with your current client base. Customer needs may have changed so businesses should look for other goods or services to supplement their demand. You should reach out to your customer base and determine their foreseeable needs for the next three to six months.
• Set short-term and long-term financial goals then prioritize them – this will help you make sound financial decisions when unexpected issues arise.
• Create a cash flow projection for a minimum of four to six weeks and one encompassing all of 2021 – this will help you identify your immediate working capital needs and help you see the broader picture of your business’s finances. You may be able to reduce, cut, or reschedule expenses to give you time to collect on your receivables. Having a plan with sufficient reserves will help keep you on track to meet your financial obligations.
• Avoid financial products that promise immediate access to cash or ones with lax underwriting requirements – chances are there are some unforeseen strings attached. Stay away from payday loans and merchant cash advances (MCAs). They typically come with exorbitantly high-interest rates and will create a never-ending cycle of debt. 
• Establish a means for monitoring both the local and national impacts caused by COVID-19 – monitoring will be crucial. Stay up to date on current events and monitor your industry to ensure if additional shutdowns were to occur what that would mean for your business and how you could mitigate the risks associated with it. Better planning today means a brighter tomorrow for the success of your business.

Going into 2021, your business will have to adapt to whatever the “new” normal which everyone will be facing. The COVID-19 vaccines show promise, but we cannot expect a return to the “old” way of doing things for at least the first half of the year.

Do not allow yourself to overthink the issues you faced in 2020, instead look forward to 2021 with a realistic plan to ensure you can ride out the storms facing us. Being prepared is the key to your ongoing success. When you are thinking about capital requirements, contact Capstone, and find out how we can help you be prepared financially to adapt to whatever changes you may face in 2021. You can reach one of our representatives by contacting us at [email protected] or call us at (212) 755-3636 to speak with a representative today.

We have been facing an unprecedented time during 2020 with COVID-19 ravaging our communities. Governors across the United States have taken steps, which we once never imagined including ordering business owners to close their doors. This massive closedown was in response to states losing lives, hospitals filling up, and the virus spreading at rates one could only be shocked at hearing about.

Unfortunately, while there have been massive strides in combating the virus including some therapeutics and the recent announcement of an emergency use authorization for a vaccine, we still have a long way to go before our businesses get back to “normal” operations. During this time, we have heard about more businesses than ever before filing for bankruptcy protection, and if the prognostications are accurate, we can expect more.

Borrowing is Driving Business Bankruptcies

Energy companies, travel and tourism businesses, and retail businesses which were on the edge were toppled during the early months of the pandemic. There were very few industries which were not impacted by lack of sales, inability to continue operating with fewer people being allowed to congregate indoors, and naturally, fewer people traveling for business or pleasure. According to Bloomberg News, thousands of businesses filed for bankruptcy protection, while thousands more shuttered their doors for good. However, this may not capture the full impact of the COVID-19 pandemic on bankruptcy filings for business.

The International Monetary Fund (IMF) has indicated they anticipate seeing the trend of business bankruptcies to continue ticking up over the next several months, and perhaps well into the third quarter of 2021. In large part, they believe this trend will be driven largely by debt, and not as a result of any restrictions which are placed on businesses, though there are currently significant restrictions in place, and more may be headed our way.

The IMF believes this trend is a result of businesses who were forced to borrow money to see their way through the initial lockdowns. However, for many of these businesses, getting the doors open is only part of the problem. Customer confidence walking through the doors of a retail outlet means depressed sales. Lack of confidence in being safe from the virus will continue to ravage many businesses including, and perhaps most notable, the hospitality industry.

Some of the sectors which have seen notable bankruptcies recently include:

• Retailers such as JC Penney, Lord & Taylor, Neiman Marcus and Brook Brothers are the most notable bankruptcy protection filers this year. Many smaller retailers have also filed for protection. Many other clothing retailers are still facing pressure and may be forced to file bankruptcy if holiday sales figures do not rescue them from disaster.
• Energy prices have taken a beating and while it is likely some of the larger companies will be able to ride out the decrease in sales and lower prices there is a high probability some regional energy companies, particularly those who have been forced to work with smaller profit margins may have to consider bankruptcy and close their doors for good.
• In the car rental sector, another notable name was HertzCorporation. The company also owns other rental car brands including Dollar and Thrifty. In May, they filed for Chapter 11 protection and most recently, they changed CEOs for the fourth time in six years.
• Another sector which has been ravaged by closedowns is personal gyms and training facilities. 24 Hour Fitness and Gold’s Gym have both filed for Chapter 11 protection and neither is expected to be able to rebound from the shutdown.
• Restaurants have been hit particularly hard by COVID-19 restrictions. CEC Entertainment (Chuck E Cheese), California Pizza Kitchen, Sizzler USA, Ruby Tuesday, Friendly’s Restaurants and FoodFirst Global Holdings, the parent company of restaurant chains Bravo Cucina Italiano and Brio Tuscan Grille all have filed for protection and in some cases, have committed to closing all or some of their remaining locations.

Red Flags for Getting Back to Business

Slower holiday sales are anticipated this year for a number of reasons. Currently, many states are actively encouraging people to not open up their homes to people outside, even family members to help stop the spread of COVID-19. Additionally, many are uncertain about how long they will have to wait before they return to full employment, or whether they will have a job come January of 2021. Uncertainty at how much government assistance is available, and other factors will likely continue to slow consumer spending.

Black Friday sales and other holiday sales often serve as a warning signal for the economy. In-store sales dropped an unheard-of 52 percent while online sales increased 22 percent. This may indicate more consumers started shopping earlier or may be saving money and buying less. If this holds true, we could see unprecedented business closures post-holiday season as businesses begin to evaluate their financial outlook for 2021 and make decisions about where their focus should be.

Getting Back to Business in 2021

Reopening the doors and being ready to meet the challenges of 2021 may only be the tip of the iceberg. Unemployment numbers, which tapered off from the high level of 14.7 percent in April of 2020 currently sits at about 6.7 percent, an amazing improvement. However, many of these numbers can be deceptive because some of the people currently unemployed may not have jobs to go back to because their businesses no longer exist. In some industries, there have been complaints from employees because they have been told that should the company reopen, they will have to reapply for their jobs versus being guaranteed a job. This is a recipe for disaster for businesses and for individuals. Keep in mind, these numbers also do not reflect employees who may currently be “furloughed” versus laid off.

For those businesses who are facing COVID-19 slowdowns, dealing with reopening, and still facing an uncertain future, going into debt could exacerbate any issues they were facing before the pandemic. One problem many businesses have faced, cash flow issues, will likely continue into early to mid-2021 whether restrictions on opening hours and capacity are lifted. Demand over the holiday season will help some businesses, but only if they can take advantage of the demand for delivery of services direct to consumer, or direct to businesses who are dealing directly with consumers. For those business owners, the need for ready access to capital to fund materials purchases will be the key to keeping their doors opening and avoiding the need to consider bankruptcy or exchanging equity in their company in return for capital to fund growth.

Financing New Growth and Demand Needs for 2021

Unfortunately, one other side effect of the pandemic is while interest rates have remained low, the credit markets still offer little relief for small and mid-sized business owners. Even with low rates, small business lending continues to be a challenge with fewer small business loans being granted. During the second quarter of 2020, small and mid-sized business lending decreased, when in reality, it was probably needed more than ever.

To avoid needing to seek protection under the bankruptcy code, many small and mid-sized businesses, particularly those which are in already underserved markets such as entertainment, staffing, and contractors will need customized solutions to their cash flow problems. At Capstone, we offer that flexibility. We can help your small to mid-sized business find a financing solution that helps you bridge the cash flow gap between now and the vaccine being more widely distributed allowing businesses to return to normal operations. Contact us today and let us help you find a solution that works for your business so you have the capital you need to survive through these uncertain economic times.