The ripple effect of COVID-19 presents a myriad of financial challenges to business owners, and bankruptcy attorney and trustee Howard Ehrenberg of SulmeyerKupetz, implores owners to review specific constraints and limitations in debt and loan documents to avoid defaulting. He explains, “Owners need to take advantage of credit relief options, such as forbearance, deferrals, moratoriums, extensions, debt restructuring/forgiveness. This gives businesses a runway to assess cash, extend payables and identify other sources of liquidity.”
What financial challenges are businesses currently facing during this unprecedented time?
Many businesses have seen a complete shutdown of their revenue streams. Those that have not had a complete shutdown have had their revenue cut to the point where they cannot operate profitably. However, at the same time, debt, rent, payroll are all due and owing.
What restrictions are making it further complicated for businesses facing debt?
Businesses are forced by law to shut completely unless they are an essential service or are in a jurisdiction that is in the process of ”reopening”. Even where a business can legally operate, the safety of employees and customers create extreme complications.
What steps can businesses proactively take to mitigate fiscal challenges?
There are a number of steps which businesses can take. First, preserve cash. Contact vendors, landlords and others to negotiate extensions of time to may payments. Apply for all government assistance including the PPP loan program administered by the SBA. Consider whether a claim can be made to the insurance carrier for business interruption. Consult with professionals before it is too late.
What constraints and limitations are often presented in debt documents and contracts?
Most contacts do not have provisions that would forgive or even defer the obligation to pay due to a pandemic. Thus, this is the time to become creative and seek to negotiate alternate arrangements.
Is there anything businesses can do to work around these limitations?
Many jurisdictions have imposed moratoriums on evictions and foreclosures. Many courts are not accepting new cases. These realities can give a business some breathing room.
What levers can be pulled to extend runway?
Prepare a budget to show your exact situation. Have your lease, credit agreements and other contracts reviewed by a professional to look for leverage points.
What is the best way for businesses to manage relationships with stockholders during this time?
Transparency. This will end, but the relationship with stakeholders will continue, so it is imperative to be open and honest.
What impact has ‘force majeure’ had on companies?
There is little evidence that this provision is being honoured by landlords, banks or others to forgive or defer debt payments. It is likely that the concept will lead to litigation, but for now, it is not a concept that can be relied upon for immediate relief.
