Update on COVID-19
During the ongoing COVID-19 pandemic, we hope that all our clients and associates are staying healthy and safe. Many business owners and employees (as well as laid-off employees) are facing difficult times. Forecasts by most economic experts are that the balance of 2020 and much of 2021 will reflect significantly depressed revenues and profits for some of the most prevalent business types, which include restaurants, hotels, and travel related industries. A return to near-2019 levels will hopefully occur by late 2021 for many of these more impacted types of businesses.
Some such businesses will not survive these trying times, but many can, particularly those that design a financial plan whose purpose is to get the business through this difficult period. Much of the media and political discussion regarding how to help businesses survive has centered on massive government support in the form of forgivable loans. We think a solution for many businesses can be to focus on deferral of principal and interest for seasoned bank loans. When the loan is a seasoned loan (on the books for three or more years), there is a good chance that there is still a reasonably bankable loan-to-value ratio on the financed assets (whether real estate or other).
Our suggestion is that banks should be proactive in offering debt service deferrals when part of a plan that includes an appraisal that factors in the pandemic's impact on value. In many cases banks will be able to earn fee income while taking the pressure off businesses that are relatively good risks, if they can make it through the next year to 18 months.