Loans for COVID-impacted industries

August 12, 2020

by a searcher from University of Pennsylvania - The Wharton School in New York, NY, USA

I've been looking at businesses in a COVID-impacted spaces (businesses currently closed), where a deal would be structured to close only once the business can re-open with at least 50% occupancy. I've been pinging lenders to see what kind of financing I can get, but it seems like folks are a hard no on business loans (as opposed to real estate loans) that are COVID-impacted.

One lender told me that their SBA rep won't approve anything COVID-impacted right now, and in-house they are super focused on just shoring up cash as their existing loans request deferrals.

I've been surprised at the hard line folks are taking on this given I'm looking to raise only ~1x normalized cash flow as senior debt, no other debt or seller note in the structure. Curious to hear if others have seen lenders step up to the plate on these kinds of deals, or if there are alternative lending sources I should consider.

Reply by a searcher
from Temple University in New York, USA

I can provide a little inside baseball here - I know a lot of our commercial banking clients are using a tool we created that is called the COVID-19 US Shock Assessment Tool. It essentially allows banks to stress test COVID industries in real-time. A lot of our banking clients will typically use the IBISWorld Risk scores and if the risk is above a certain level, it's an automatic decline in their systems.

This white paper our Chief Economist put out touches on this a bit (he's the one who created the IBISWorld risk scoring system and has been working with our banking clients for a few decades) - https://www.ibisworld.com/industry-insider/insights-from-our-chief-economist/pandemic-economics-white-paper/

Reply by an intermediary
in Manchester, UK

Don’t know about the States but highly doubt anyone would provide debt unless there’s significant downside protection (tangible assets).

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