Q: “With all that has been going on to keep our business viable, we have not spent a lot of time focusing on our lending relationships. Are there any issues you have been seeing that we should be keeping in mind?”

Answered by Eileen Sethna

Yes. There are a lot of Covid-related lender issues that have arisen. Hopefully, you have already started talking with your lender about the issues you are facing. If not, we recommend you reach out right away. Honestly, transparency and good communication are critical now. Here are some things we’ve been seeing with clients and contacts:

• While interest rates remain low, there is increased and intensified credit scrutiny, making it harder to get a loan. Given the “tightness” of the market, you should work to cultivate a collaborative relationship with your existing lender to maximize your potential access to credit because it may be challenging for you to get a loan elsewhere. 
• With payables strained and stretched, your receivables may be aged into “ineligibility.” Talk to your lender now if you see the trend of pushed aging that may knock you out of formula and ask to institute a SOFA “Secured Out of Formula Advance” as part of the borrowing base for an agreed-upon timeframe to ensure you have protected your access to credit. 
• If you have a non-recourse guaranty as part of your “regular” loan (not the PPP), make sure you review your non-recourse carveouts to protect against a possible recourse trigger. For example, has the shelter in place shuttered your business? Is your physical plant now vacant? What happens if there is property damage?
• Most lenders required you to sign an amendment with your PPP Note. We recommend you read it carefully to determine what it requires of you and whether there is any additional liability with that amendment. Some amendments have some strong language included relative to the efforts you must undertake to procure forgiveness. For instance, some covenants required a borrower to use “best efforts” to obtain forgiveness of not less than 75% of the loan proceeds, or even more stringent, some amendments required the Borrower to obtain 100% forgiveness of the PPP loan. Your failure to obtain those results may trigger a recourse event on the guaranty of your other loans.