2009 Redux: Business Owners Facing Economic Crisis, But for How Long?

We hope this finds you healthy and well as can be expected during this unprecedented time.

Starting in 2007 many forecasters were suitably concerned over the potential of a subprime lending market collapse, which began that Spring with Bear Stearns suddenly closing their doors. The crisis reached its apex when Lehman Brothers collapsed in September 2008, shocking the world and destroying the life savings for countless investors and retirees.

Banks immediately backed out of deals and loans, restricting or canceling lines of credit, causing a virtual stop of liquidity. The U.S. Government with the Federal Reserve implemented the Toxic Asset Relief Program (TARP) which flooded the largest banks with cash so milk could still be delivered to store shelves.

For the next seven years, the economy bounced along the bottom with the Federal Reserve keeping it from falling back into a technical recession with continued liquidity inserted into the financial systems (Quantitative Easing) along with its zero interest rate policy (ZIRP) that allowed access to cheap money.

Now, after almost four years of a strong economic resurgence which was evident in the market indexes, wages, gross domestic product, and the lowest unemployment numbers in history, the COVID-19 pandemic has all but shut down the economic engine across America and the world.

Banks are once again backing out of deals. Acquisitions are occurring only for those who can move quickly with cash. For companies seeking lines of credit, real estate capital, and business loans, the last few weeks bear a striking resemblance to 2009, when traditional lenders froze everything.

Now, most businesses are without cash flow. Employees are being furloughed or laid off at an unprecedented rate. Statistics are increasing daily, but it’s estimated half the country’s workers has either had their salary slashed or are out of work completely without income. This economic crisis is impacting every demographic, every business category and every part of the country.

Small business owners are hopeful the promised SBA loans will provide sufficient resources to help them through the crisis without having to lay off employees.

Unfortunately, the SBA 7a, Cares Act Paycheck Protection Program (PPP) scheduled by the Government to be implemented today (Friday, April 3^rd) is not going as planned. Many SBA lenders and loan providers are postponing taking applications as the Treasury guidance is still being outlined.

With the expected unimaginable number of businesses that will apply for these partially forgivable loans, there is the very real challenge of logistics and infrastructure to process the applications. We are being told by senior-level partners at banks and lending institutions that many businesses may not see loans processed and closed for months.

Both borrowers and the banks/traditional lenders are now in crisis mode and there will be little if any movement in cash flow for the foreseeable future.

While leaders tout a “V” shaped recovery, unfortunately, we believe this overly optimistic as suddenly shutting down an economic engine that was humming nicely will destroy some internal components. It will take some time to rebuild that engine. It WILL be rebuilt, but the challenge will be for those businesses to survive while awaiting a true recovery.

If you are a business owner needing guidance on how to manage existing debt and cash flow, Valcor is actively assisting business owners through this challenging time with debt mediation, restructuring and capital acquisition utilizing some of our private lending partners who have their own funds, allowing us to cut through the red tape of traditional bank lenders, saving both time, our clients businesses and their employee’s jobs.

Please contact us directly for more information, or if you are looking to help small and medium businesses (SMB’s) navigate through these times.

Please remain healthy and safe and remember, ultimately, America and the world will rebound from this, and we are optimistic for the long term future.