Unfiltered LIVE: Ask the Experts | Applying for Loans During COVID-19

Question: We have never had a cash problem and feel we are in a good place as far as cash goes, but not knowing how long or how severe this shutdown will be, would you recommend applying to an SBA loan or apply to our bank for a line of credit?

Gary Elekes; EGIA faculty member and iMarket Solutions Founder:

The answer that question is yes! You should probably first go to your bank and get a bank line of credit prior to the SBA.

I haven’t read the full bill – I did read the first version of the bill that didn’t pass, which is 247 Pages. Yes, I read every one of the 247 pages because of this answer, which there were some serious conditions if you accepted a loan.

There were all kinds of caveats relative to that so I would suggest a bank line of credit is much wiser. Other than the financial conditions that you might have to sign personal guarantee or you might have to look at certain requirements for collateralizing the loan, you’re going to be in a much better position to deal with that.

I’m happy to hear that at least some companies are in good cash positions. Before I did any of that, I would do a cash-flow forecast using the tool that I’m happy to send out, which basically looks at a 10-to-15-percent working capital liquidity type process of your company that’s the minimum threshold that you want to deal with.

Knowing that is the threshold, the tool has some programming in it that says, okay now it’s time to access your bank my credit. Specifically if we were going to take a large job or if we’re going to get into maybe new construction or we were going to take a project that we wouldn’t normally take.

Those are good ways to look at those types of things because you don’t want to use your capital if you can use somebody else’s capital sky when it’s low cost money. Obviously with what the treasury is doing, where we’re going relative to the FED, even though the banks are maintaining some of the commercial note numbers, there’s tremendous pressure on those coming down.

In fact, I have the very same meeting that we’re talking about with my bank right after this call specifically to get a bank line of credit organized. We don’t have one in that particular company. We’ve got about $800,000 in cash on hand, so we’re good but we want that just in case. If this lasts longer than we anticipate, we’ll have access to it.

They’re going to want a lot of information, a lot of underwriting and data points but that’s okay. It’s worth applying. On the SBA side, if you don’t get a bank line of credit, you should still apply, you should still get approved. You don’t have to accept the loan. The conditions that I read were based on you accepting the loan, so getting the approval process in place is wise, absolutely!

Everybody on this call should execute those disciplines.

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