FINANCING AFTER CARES ACT AND PPP

I sent some insights/suggestions to search funds I am currently working with and thought it would be worthwhile to post to the community as a whole.   This fall/winter will be a unique time for banks and borrowers which could impact how you go about financing acquisitions in the coming months.  Please feel free to reach out if you would like any more details. .  For what it is worth this is my opinion and not any official or statistical analysis                                                                                                         1. Further Stimulus:  the 9.27 deadline has not been extended for SBA loan payments (unfortunately).  While possible I would not hold my breath waiting for this to occur.  This measure included new money but was really designed for existing SBA borrowers who were the main beneficiaries based on the government shutting down their businesses.  While it could be extended you cannot count on this as of this moment.  There have been other stimulus measures proposed but nothing has been passed yet.                                                                                                                                                                                           2.  PPP loan forgiveness:  Many banks, especially banks who have a heavy SBA focus, had capital issues associated with the PPP loan process.  SBA loans are often sold on the secondary market (at a huge fee) and banks with a high proportion of SBA loans often have lower capital than traditional banks based on this model.  The PPP process didn't have a robust market for sales due to the preferential borrowing terms.  As such banks kept these on their books but had to provisional capital and deposit base to hold these notes.  This resulted in a lot of banks being on the sidelines or scaling back for the last few months as their capital was allocated to PPP loans.  With the forgiveness process (supposedly) starting soon this will free up these banks to lend at their more traditional levels which could increase your bank resources available in both SBA and possibly conventional borrowing situations                                                                                                                                                                   3.  CARES ACT Payments:  the CARES ACT made payments for all SBA borrowers for 6 months starting in the March/April time frame.  While beneficial to borrowers this was also massively beneficial to banks that have heavy SBA exposure.  SBA loans are by nature higher risk due to high leverage and collateral shortfalls.  The shutdowns and general economic malaise did not have a major impact on SBA lenders as payments were being made independent of borrower financial performance,  However, with the CARES ACT benefits about to end (depending on if the loan payments were originally deferred), many banks will begin to feel the impact of past SBA loans that are not performing.  This will essentially moot point 2 for some banks as capital will be allocated from PPP to loan loss reserves.  Depending on payment deferrals (which were either 3 or 6 months) banks will start to have receive payments again from borrowers in the next few months.  This will likely mean defaults will start to occur as impacted businesses begin to fold.  Be aware of the capital position of the bank you have chosen to work with on your acquisition.  Massive changes in lending will likely occur quickly at impacted banks, especially those with highly leveraged loans in impacted industries.                                                       4. Refinance opportunities: the SBA payment/ bank payments deferment has also presented a great opportunity for current SBA borrowers to revisit their loan arrangements.     Cash reserves could mean you are able to achieve conventional refinancing opportunities (assuming assets have gone up to the point of securing the loan without SBA) or sellers might take a haircut on their seller notes to be paid in full today...this requires your bank to approved.  Either way if you are a current SBA (or conventional borrower) who would like to explore refinancing now is an optimal time with rates being depressed and cash positions being increased due to government assistance.  Please do not hesitate to contact me at



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