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Debt Refinancing in a COVID World

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The COVID 19 crisis will have an ever-lasting effect on all of us in many ways, not just for those running small businesses. For those that ARE running small businesses at this time, how long it will take to rebuild the business from this depressed position without the benefit of working capital to re-start the cashflows is one thing. It is another to not know what the operating margins are under these current stressed scenarios and what resulting capital is needed and when.

The same holds true for those of us in the business of lending to small businesses. For us fintech lenders that have been leveraging historic data to understand the carrying capacity of a prospective borrower, in these times of change in a company’s cost structure and uncertain revenue environment, it is becoming increasing important to actually look forward instead of back. Thus the decisions made by the lender must revert in part to manual decisioning to understand the speed and ability of resumption of the business and to what degree?

What can you do as a business owner to secure needed credit?

So what can small businesses do to ease the burden on the underwriter and help the small business owner obtain the necessary capital required to “kick-start” their business? – Two key drivers!:

Costs: There’s a new normal on the operating cost front for most business right now. From the lay-offs of staff to the push on payables to the reductions in utility bills, fuel costs, whatever – there’s a need to ensure an understanding of the operating cost of the business. Going lean may have had some benefits to managing the way out of this recent challenge and so knowing what might be a new normal in the operating costs of the business and how that can mean near-term or improved profitability is really important.

Revenues: What are the drivers of the re-establishment of revenues? Is it marketing & advertising? Is it re-engagement with specific buyers? – and what new opportunities are there to be considered following any changes or “pivots” that have taken place during the last 60 days? The point here is that some expectation on this rekindled revenue line needs fact behind it. If a dialogue is happening between you and a lender (in any form – bank, fintech), one needs credibility in the revenue generation point that holds water. Past performance is a good indicator of course and so is some seasonality – but have a base of fact that supports a new revenue plan.

The Bottom Line: Some of the modelling going on now is all about the reduction of costs, as showing up in the Bank statements and coupling this with some percentage of revenues from the past looking forward. Fintech lenders want to find ways to support small businesses and capturing the clarity of the two key points above will mean the ability to get capital into the hands of small businesses for renewed growth.

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About the Author



Lendified is Canada's premier online lender for small businesses. The company was founded by former bank executives dedicated to provide businesses with fast, easy, and affordable financing. The Lendified team regularly produces blogs and guides to help small business owners succeed.

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