Written with support from Zack Spickard, Balentine Family Office Team Member
The COVID-19 pandemic has put billions of people on lockdown throughout the world and, for all intents and purposes, caused economic time to stop. Financial time, however, continues; the markets still open, loans still accrue interest, and mortgages must still be paid. Private equity and venture investors are concerned and want information. The widespread nature of this pandemic has led many lenders to offer to modify loans in order to protect American workers and the broader economy. These modifications, however, remain at the lender’s discretion. As such, proper communication is critical to ensure your access to capital remains open and that you’re able to negotiate short-term relief if your business has been materially affected by the pandemic.
Communication with lenders and investors is crucial in times of intense uncertainty and volatility. Lenders are willing to work with business owners they trust and believe will come out from this crisis. Many lenders are offering forbearance or additional financing to businesses affected by the pandemic, in addition to the economic relief provided to small businesses in the CARES Act.
To protect your relationship with your lenders and investors in these difficult times, we recommend the following:
Establish a “Nerve Center”
Create clear internal communication channels among executives to allow crucial processes to continue in the event of any one person’s incapacitation or quarantine. The current situation is an opportunity to integrate technology (e.g., telecommunication) into your business and update corporate governance policies. Having a solid business continuity plan and decision-making process eases investor worries and assures them that you are prepared for a variety of possible outcomes. Your business nerve center is critical, and the same voice should speak consistently to lenders/investors.
Perform Scenario Analyses
Create a variety of financial projections to share with your lenders or investors and include all possible scenarios for your business. Reconsider the core assumptions that underlie your business and under what circumstances they could change. Good scenario thinking supports a decision-making process and helps communicate to your financial partners the range of options for your business. Consider how you can redefine your business model to cope with financial challenges, such as distillers shifting from producing alcohol to hand sanitizer. Technology providers are also finding ways to adapt to a new reality.
Be Fast and Decisive in Decision Making
Show your financial partners that you understand the problems facing your business and how long they will last. While no one knows the timeline of this pandemic, if your lenders believe you have a handle on the problems in your business and a reputable plan to fix them, they are more likely to work with you on restructuring your debt. Equity investors want to see you adapt decisively and make tough decisions quickly—crises often require speed and deliberateness of decision making that would seem inappropriate in normal times.
Speak confidently yet remain humble and fact-based. While you do not want to sound as if you are minimizing the risks facing your businesses, lenders/investors also want their clients to remain confident in themselves and not succumb to panic. Bringing problems to light sooner rather than later will instill confidence and build trust among lenders and investors.
Utilize your network and ask for their help. Recognize that your capital providers are an important part of your network. Communicate regularly with your board of directors, lenders, and investors because they likely have a better perspective on the broader economic picture than any one executive can. We have seen equity investors working overtime to connect CEOs to brainstorm together and collaborate.
Prepare for Post-Crisis
This will end, and your business will need to be intact and in a position to compete. While it does not make sense to be overly aggressive now, most CEOs have created wish lists of companies, customers, and employees they would like to pursue when the time comes. Communicate to your capital stack that you are not going to use all capital for “burn,” but that you also have some aggressive dry powder if and when the storm clears.
In times of crisis, your best defense is a strong offense.
With everything going on, the last thing you need is a nervous bank or equity investor. Don’t make the mistake of avoiding your capital provider. Lean in and see them as a potential resource. Communicate with them where you are, what you are doing, why you are doing it, and what they can expect to see. The multiple small acts of heroism between here and the other side of this crisis will determine the survival of many businesses. Over-communicate and make sure your business not only survives but has the capital providers behind it so that it is positioned to thrive.
Much uncertainty exists around the coronavirus and the ripple effects of this pandemic. Balentine will continue to assess new data and provide timely information and insight around current market volatility and economic impact. Visit the dedicated resource page on our website, “Latest Market Updates Amid the Coronavirus,” for a consolidation of the insights and resources we encourage investors to read.