When PPP Dollars Run Out, Non-Bank ABL Steps In

Graham Bachman shares his thoughts on the impact of COVID-19, federal stimulus, and its longer term impact on business

“A total of 470 companies have gone bankrupt this year as of Sept. 7, more than the number of filings during any comparable period since 2010.” S&P Global Intelligence, September 8, 2020.  Bankruptcies may become even more prevalent after federal stimulus packages run out. To date, the most notable COVID-related bankruptcies have been heavily concentrated in problematic industries such as Oil and Gas (Chesapeake Energy) or Retail (Brooks Brothers, J Crew, etc.). Many of these early filing companies were struggling pre-COVID, and the economic shock associated with COVID-19, was the proverbial straw that broke the camel’s back. But there are even more businesses who have sales channel and operational capacity disruption due to the pandemic, and were saved from bankruptcy, furloughs, and layoffs by receiving significant government aid. Many aerospace, travel and leisure, restaurants, conferences, entertainment, manufacturing, and wholesalers that supply businesses in these industries that were not already in a downward trend, may have seen revenues decline at an unprecedented rate. There are many businesses, and more importantly employers, who are suffering from the effects of COVID with no end in sight.

Recently, I was fortunate to be a panelist on a webinar hosted by The Secured Finance Network titled, “What Happens after PPP Dollars Run Out?” where we discussed this very topic. The panelists, bank lenders and non-bank lenders, all noted that PPP funds have been well received by the market, keeping many businesses alive and reducing the number of layoffs and furloughs dramatically. Each of us agreed, from our various perspectives, that individual stimulus checks amounted to a temporary band-aid for many lower income earners, propping up consumer demand. A national and local bank on our panel gave examples of how banks of all sizes nationwide showed strength and flexibility, distributing the funds as necessary and being true partners to their clients by almost universally allowing deferrals on principal and interest payments, and in many cases waiving covenant breaches that may have been caused by COVID-19.

It is impossible to know what the last six months would have looked like without the emergency funding, but I think it is safe to say that many businesses likely would not be able to pay their employees without it.  The PPP funds distributed were meant to be a bridge, providing passage to a normalized economy where businesses can stand on their own and resume their “normal” activity. They were distributed at a time when most predicted that the world would be comfortably back to shopping at brick and mortar stores in fairly short order.  Here we are at the end of Q3 2020, with no end to the pandemic or its effects in sight.  We will start to see PPP funds beginning to dry up on balance sheets while banks starting to enforce covenants and expect to recoup interest and principal payments.  But unfortunately, many businesses see no end in sight or a path forward to getting back to, “normal.” As the economy and markets continue to shift, I believe we will see an increased need for non-bank alternative lending solutions to step up and do their part in helping maintain solvency and propping up our economy.

Asset based lending provides a solution for businesses that need to solve their working capital needs to continue to operate and grow. At Edge Capital, we provide revolving lines of credit to maintain the liquidity businesses may needed to make payroll, buy materials to create the inventory needed to sell and grow. As the rapidly evolving economic landscape continues to shift under the weight of the pandemic, non-bank lenders are uniquely positioned with the unregulated flexibility to tackle challenges behind us and challenges yet to come. We cannot know how long the economy will be challenged as a result of the COVID-19 pandemic, what the extent of the potential fallout will be, or how long temporary solutions like PPP will last. Through the pandemic and into the future, Edge Capital will continue to provide funding for businesses that need it, hoping to do our part to save the lower-middle market businesses of America.

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