How to Manage Cash Flow in a COVID-19 World

Does your business have enough to make it through the next month? 

How about the next six months?

As the world grapples with the COVID-19 (coronavirus) pandemic, organizations are operating on a long and uncertain timeline—and facing significant cash flow issues. The virus has shut down cities, upended supply chains, forced teams to go remote, brought travel to a halt, and diminished demand for everything but necessities—all of which has squeezed businesses’ resources and devastated their revenue-generating capacity.

Unless you stock or deliver food, produce hand sanitizer, or run a teleconferencing or streaming service, your company is likely in a cash crunch.

In an ideal world, this wouldn’t be a problem until summer or fall 2020, assuming—as some scientists predict—that COVID-19 will continue to disrupt our lives by then. Conventional business wisdom is that a company should have several months’ worth of cash reserves in the bank at all times. Some advisors go so far as to recommend maintaining 18 months of runway at minimum (which would neatly align with the timeline for an expected coronavirus vaccine).

But as business owners know, this advice is like “get at least seven hours of sleep per night” or “exercise for 30 minutes a day.” We know it’s what we should be doing, but we don’t—because, often, we can’t. For countless organizations—including many of the world’s biggest companies—ensuring liquidity for more than a few weeks feels unfeasible, if not impossible. And if you haven’t built up cash until now, a pandemic is a hell of a time to start. 

Fortunately, there are several ways to keep your business afloat during this difficult time. The key is to think strategically both in terms of accessing capital and modeling cash flow

Finding the Money: Take Advantage of All Your Options

If you’re strapped for operating capital right now, take solace in the fact that you’re not alone. Millions of businesses are dealing with the same challenges you’re facing. Your competitors, vendors, and partners have likely had to lay off workers, postpone or cancel major plans, and make other wrenching decisions—not to mention the personal tolls on owners and employees and their families. The coronavirus has hurt all of us, but we’re all in it together.

The massive scope of this crisis is in some ways advantageous to businesses, as it’s prompted the federal government to take action that benefits nearly everyone. In late March, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (or CARES Act), a historic aid package that injects $2 trillion into the US economy—including $349 billion for small businesses. Under the law, most companies and nonprofit organizations with fewer than 500 employees are eligible for up to $10 million each through 7(a) loans with the Small Business Administration. Interest rates are capped at 4%, and loans may be forgivable in many cases.

An SBA loan isn’t your only option, however. You can also consider one or more of the following:

Be sure to reach out to your financing sources. Talk to your bank or credit card issuer. Many lending institutions are waiving fees, offering assistance, reducing minimum payments, and temporarily suspending interest rates during the COVID-19 pandemic. There’s a good chance that your lender is willing to work with you to figure out a stopgap solution for your business.

Whether you can access financial relief or not, now is the time to think entrepreneurially and get creative. A shift in your business model or delivery model could bring much-needed cash to your accounts. Here’s how some companies are navigating the coronavirus crisis by changing how they do business.

Modeling Cash Flow to Make Better Short- and Long-Term Decisions

However you’re able to secure capital during these next few months, it’s essential that you retain full control of and visibility into your organization’s finances. 

For one, it might be a prerequisite for accessing cash. Your lenders may require you to verify your solvency and generate ongoing liquidity reports. 

But cash flow modeling is equally important for your own purposes of business management and decision-making. It shows you what you’ll need on hand week by week, month by month, so you can shift from pure crisis mode to longer-term planning. It could mean the difference between laying off an employee now and a month from now.

Cash flow analysis can help you decide…

  • what kind of remote work subscription software you can pay for, and for how long;
  • if you can afford to let a customer or client delay an invoice payment;
  • whether you need to take out another loan or line of credit;
  • if it’s time to sell off your equipment and excess stock, or if you can wait;
  • what kinds of marketing expenses and ad buys you can pay for and when;

…and much, much more. 

When you analyze your cash flow, you reveal opportunities to save money and spend smarter. As Matt Lew, senior manager at Deloitte told CFO Journal just a few months ago—before the coronavirus had spread beyond China—cash flow modeling “can enable agile decision-making that becomes a competitive advantage when opportunities may be available for only small windows of time.” 

Right now, for many businesses, the window of time has never been smaller.

Ask Us for Help

Unless you’re an experienced accountant, you probably didn’t get into business to model cash flow. The good news is that you don’t have to do it by yourself. At Quantive, we offer affordable, on-demand cash flow forecasting as part of our Fractional CFO services

Quantive’s CFO experts can help you effectively plan for the next few months so you can optimize your business performance during the COVID-19 pandemic—maximizing your revenue and minimizing your costs. 

In addition to cash flow forecasting, we also provide:

  • Payroll forecast and rationalization
  • Outsourced controller services
  • Spend analysis
  • Line of credit analysis
  • Debt financing / debt placement
  • Bookkeeping
  • Liquidity analysis
  • Budgeting
  • Development of best-in-class financial procedures 
  • Exit preparation

To learn more and get started ASAP, contact us.

How Can an SBA Loan Help Your Company Survive the COVID-19 Pandemic?

Federal, state, and local governments have encouraged or forced any nonessential businesses to shut down for the sake of “social distancing” practices. This has put a significant dent in the revenues of businesses throughout the country, with many not having the funds to support their current operations for more than a couple more months. However, due to this impact, the $2 trillion stimulus package passed by congress included $350 billion in aid geared toward small business working capital loans to help businesses survive during the COVID-19 pandemic. The first question that needs to be answered is, what is a working capital loan? Second, how can it help your small business survive in the current economic climate?

What is a working capital loan?

First, we need to define working capital, which is the difference between a company’s current assets, mainly cash and accounts receivable, and its current liabilities, mainly accounts payable, and it is a measurement of a company’s liquidity, operational efficiency, and its short-term financial health. A company’s working capital funds can be used to cover its short-term cost, such as payroll, fixed debts, and accounts payable, which if your business has been shut down or seriously impacted from COVID-19, may be struggling to do at this time.

This is where a working capital loan comes in to help alleviate some of the financial pressure and help businesses keep up with short-term expenses during a time in which little or no revenues are being generated. A working capital loan accomplishes exactly what it sounds like it will, it is an influx of funds to help cover the expenses that a company’s working capital balance typically does. However, these loans are typically not easy to acquire, and often require collateral or a significant personal guarantee by the business owner, but as a result of the stimulus package, more favorable terms are being provided through the Small Business Association (SBA).

How can a working capital loan help a business through the COVID-19 pandemic?

As the government has enforced or encouraged businesses to shut down during the COVID-19 outbreak, companies have been experiencing significant declines in revenues and may be struggling to cover their current expenses. The stimulus package including $350 billion in relief for small businesses by means of SBA loans can help your company stay afloat. The SBA’s Economic Injury Disaster Loans are offering up to $2 million in assistance to help small businesses cover their payroll, fixed debts, accounts payable, and any other bills unable to be paid due to the negative impacts from COVID-19. The interest rate on these loans will be set at only 3.75%, with length and terms being determined on a case-by-case basis.

How to receive part of this financial aid?

One important distinction is that the SBA is not actually a lender. The loan is extended by a bank and the SBA in turn guarantees a portion of the loan, which means you will need to find an approved SBA lender first. After that, any loan that exceeds $250,000 in goodwill requires an independent third-party appraiser, which is where Quantive can help you in the process. The steps to take are:

1. Determine if a working capital loan is something that could help your business
2. Confirm your business qualifies to receive part of the $350 billion in relief for small businesses
3. Find a qualified SBA lender
4. Reach out to Quantive to perform the third-party appraisal
5. Get the funds to help your business survive the COVID-19 pandemic!



SBA Disaster Assistance in Response to COVID-19

Response to COVID-19

The $2 trillion stimulus passed by the Senate included $350 billion small business loan program that will be overseen by the Small Business Administration. This will include offering low-interest federal disaster loans to provide working capital to small businesses experiencing an adverse economic impact from COVID-19. The highlights and details of the program are as follows:

  • The Economic Injury Disaster Loan assistance declaration issued by the SBA makes loans available statewide to small businesses to help alleviate economic injury caused by COVID-19.
  • SBA’s Economic Injury Disaster Loans will offer up to $2 million in assistance and provide immediate economic support to small businesses to help cover the temporary loss of revenue they are experiencing.
  • These loans can be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.
  • The interest rate is 3.75% for small businesses.
  • SBA offers loans with long-term repayments to keep payments affordable with a maximum term of 30 years. Terms are determined on a case-by-case basis.

The information below details an overview of the SBA Loan Program in general and its requirements.

SBA Loan Program Overview

The SBA has two primary loan programs. The most commonly used is the 7(a) program – which we focus on here – and the 504 program.   The 7(a) program is frequently used for working capital expansion or to fund the acquisition of an existing business.  In fact, as a business valuation firm, we are most often involved with the SBA 7(a) program in the context of business acquisitions.

One important distinction is that the SBA is not actually a lender.  The loan is extended by a bank, and the SBA in turn guarantees a portion of the loan.  Thus it’s somewhat of a misnomer when someone suggests “getting a loan from the SBA” – as it is only guaranteed by the SBA.

We very frequently hear directly from borrows that are looking to secure an SBA loan, so we thought it would be apropos to provide a quick overview of the program and its key elements.

Eligibility: What Can a 7(a) Loan be Used For?

SBA Loans are provided to businesses, but it is both the character and nature of both the business and the borrowing principles that dictate eligibility.  Key considerations include what the business actually does, as well as the character and creditworthiness of the borrower.

To be eligible businesses must:

  • Operate for profit
  • Be small, as defined by SBA
  • Be a US based business
  • Have reasonable invested equity (Yes, this sounds like a future article, right reader? )
  • Use alternative financial resources, including personal assets, before seeking financial assistance
  • Be able to demonstrate a need for the loan proceeds
  • Use the funds for a sound business purpose
  • Not be delinquent on any existing debt obligations to the U.S. government

Certain types of businesses are declared ineligible by default by the SBA.  While there is actually quite a lengthy list, suffice it to say that if you think the government wouldn’t really want to be involved in a type of business, it’s probably not eligible for the 7(a) loan program.  Some examples of ineligible businesses include:

  • Banks and Lenders
  • Businesses engaged in illegal activities
  • Lobbyists
  • Businesses principally engaged in teaching, instructing, counseling or indoctrinating religion or religious beliefs, whether in a religious or secular setting


7(a) Loan Limits: How Much?

The 7(a) program has a cap of $5 million.  That being said, many lenders do not consider loans approaching the upper threshold of size limits.  In fact, loans tend average between 300k and 400k.

That being said, some lenders prefer larger loans (and likewise some trend smaller).  It makes sense, then, to understand what the appetite a particular bank has for loans by size before starting the application process.

Proceeds:  What Can You Use a 7(a) loan for?

  • To provide long-term working capital to use to pay operational expenses, accounts payable and/or to purchase inventory
  • Short-term working capital needs, including seasonal financing, contract performance, construction financing and exporting
  • Revolving funds based on the value of existing inventory and receivables, under special conditions
  • To purchase equipment, machinery, furniture, fixtures, supplies or materials
  • To purchase real estate, including land and buildings
  • To construct a new building or renovate an existing building
  • To establish a new business or assist in the acquisition, operation or expansion of an existing business
  • To refinance existing business debt, under certain conditions

Typical Terms

Amount Term Loans from $25,000 to $5 million.
  • Working Capital: up to 7 years.
  • Equipment: up to 10 years (or useful life).
  • Real Estate: up to 25 years.
Maximum Interest Rates
  • Fixed or variable.
  • Terms less than 7 years: Wall Street Journal Prime + 2.25%.
  • Terms equal to or greater than 7 years: Wall Street Journal Prime + 2.75%.
Collateral The bank will take a lien on  business assets and/or a mortgage on real estate.
Fees SBA Guarantee Fees:

  • Loans up to $150,000 — no guarantee fees.
  • Loans from $150,001 to $750,000 — 3% of the guaranteed portion of the loan.
  • Loans from $750,001 to $5 million — 3.5% of the guaranteed portion up to $1 million and then 3.75% for guaranty above $1 million.
Underwriting Requirements
  • Personal guaranties by all owners of 20% or more.
  • Adequate business collateral, or personal assets securing personal guaranty, i.e. mortgage on a home.
  • Hazard Insurance.
  • Loans less than or equal to $150,000 — SBA provides 85% guarantee.
  • Loans greater than $150,000 — Guaranteed amount is 75%.

A Great Program

The 7(a) program is truly a great offering.  It provides access to much needed capital that ordinarily wouldn’t be available to smaller companies.  This, in turn, spurs growth in the economy.  If you need help with a valuation – or access to a lender – give us a ring.  We do a vast number of business valuations for 7(a) loans, and have a broad network of lenders that we’d be happy to put you in touch with.