11 Mar How COVID-19 Change the Landscape for Businesses and Banks

Small businesses are the heartbeat that pumps life throughout the American economy. From Main Street mom-and-pop stores to thriving family-owned manufacturing businesses to burgeoning start-ups, small businesses drive economic surges and boost the creation of jobs. Because they are on the front lines, they are often the first to feel economic downturns, which couldn’t be more clear than with COVID-19.

A sobering 43% surveyed small- and mid-sized businesses reported a significant to severe impact due to COVID-19 according to research from CBIZ Main Street. Even in the face of staff furloughs, layoffs, cutbacks, and temporary closures, small businesses are poised to bounce back stronger than ever. To do so, however, it’s imperative for owners to have a clear picture of how COVID-19 changed the landscape for businesses and banks. Let’s take a closer look at a few ways how.

Underwriting Criteria Has Evolved

One of the most prevalent ways COVID-19 has changed the landscape is with lending. And no matter where you’re looking to attain financing, you can expect a heightened focus on at least the following four areas:

• How Long Have You Been in Business? Lenders may request a longer track record than previously required. For example, a lender who may have required one year in business previously may now want to review two years. It’s important you have a clear understanding of these requirements prior to applying. Doing so can greatly improve your chances for success.
• How Does Your Cash Flow Look? With cash flows taking a gargantuan hit for several small businesses, your ability to demonstrate you can service the debt is of the highest level of importance. Many lenders who may have previously deemed bank statements as an acceptable form of cash flow verification may need real-time access to your banking records to confirm your ability to make payments as scheduled.
• Your Business and Credit History May Be More Important. Because banks have tightened their purse strings, credit profiles that may have been acceptable may not be today. Because of this, it’s important for business owners to know what’s being reported to credit bureaus on their personal and business credit history.
• What Industry Are You In? As discussed in greater detail below, many industries that were previously accepted may be on the lender’s restricted list. For example, nightclubs, bars, and restaurants may find themselves on the restricted list for certain lenders.

Industry Lending Focus Has Changed

Small Business Administration (SBA) loans have been highly popular for financing startups, refinances, and acquisitions across a range of industries. And while this may still be the case, COVID-19 has undoubtedly caused lenders to be more selective due to the uncertainty that exists. Those industries that were previously profitable and created substantial cash flow prior to COVID-19 may not be able to operate or have shut down. These previous natural “shoe-ins” may be very risky deals for banks to finance today, which can prompt business owners to seek out alternative lending sources.

Banks and finance companies must also reevaluate quickly changing consumer tendencies and consumer behaviors. These key indicators should be factored into opportunities when considering financing.

The Evolution from Omni- to Multi-Channel Banking and Business

One thing is for certain: business owners who are successfully navigating the pandemic are masters at adapting. It’s not enough to monitor the situation and innovate ways to reduce losses: business owners must exercise agility, think creatively, and capitalize on opportunities as they present themselves.

In other words “staying in your own lane” has proven to be a formula for failure during the COVID-19 environment. In today’s quickly evolving world, those who choose to cruise in the brick-and-mortar lane are on the fast track to obsolescence. Cautionary tales of businesses being replaced by new, more forward-thinking models continue to emerge: Blockbuster vs Red Box vs Netflix or Kodak vs the iPhone. In short, if your business can evolve to appeal to the next generation, it’s well past time to do so.

Business Owners Understand the Importance of Planning for the Unexpected

When COVID-19 began barreling down on the United States, most people never imagined the possibility or the impact. The pandemic immediately highlighted how unprepared America was. From the drastic shortage of PPEs to lack of reliable testing to overwhelmed hospitals and health care systems, we weren’t ready. And it’s not just the macro-level where our unpreparedness was evident, it trickled down to the majority of households and small businesses.

For example, a sobering 55 million Americans said they have nothing saved in an emergency fund, while 37% say they would need to take out a loan or use a credit card to handle such an emergency. These same people are the owners of small businesses, which means the problem flows throughout the heartbeat of America’s economy.

Small Businesses Need Emergency Savings

It’s imperative for business owners to have a plan and access to capital. Fortunately, most business owners are well aware of it. In fact, 20% of small business owners report a lack of available capital is the biggest challenge for them. And during turbulent times, as with COVID-19, the lack of cash on hand can spell a quick end for small businesses because roughly 50% have enough cash for 27 days.

The lesson from COVID-19 and solution is to plan for the unexpected. One of the key components of this plan is to have emergency savings or sources of cash, such as access to a line of credit. Doing so could be the difference between having to permanently close or strategically scaling back on non-essential functions. And if you’re looking to establish a reliable link to business funds, your go-to source is Quote 2 Fund.

Looking to Establish Funding for Your Small Business? Get Your Hassle-Free Instant Quote

Unfortunately, right now banks aren’t lining up to fund mom-and-pop Main Street businesses that may have poor credit history, cash flow issues, or are too small to be profitable for the bank. At Quote 2 Fund, we know these aren’t the signs of failing or weak business, it’s a sign of where we are. Because of this, we can connect you to lenders and alternative financing sources who specialize in helping businesses like our weather the storm and grow. Best of all, we make it easy!

Contact us today.