The coronavirus is having a direct effect – financial and otherwise – on nearly every business. While the long-term effects of the global pandemic will be significant and far-reaching, the short-term financial consequences to businesses, due to expected cash shortfalls, could make the difference in a company’s survival. Here are four areas that businesses should review that could impact – and potentially improve – their financial situation:
- Lease arrangements – Landlords may be willing to accept a temporary reduction in rent rather than risk losing a good, long-term tenant, and otherwise reliable income stream, altogether. This can usually be accomplished by a simple amendment to the lease agreement.
- Debt covenants – Companies that have credit facilities often are subject to debt covenants in favor of the lender that are tested periodically. Typical debt covenants that could be violated in times of financial crises include minimum financial tests, or ratios, based on a company’s income, assets, working capital, net worth and equity. Covenants that consist of operational milestones could be impacted as well. It’s good practice for companies to approach their lenders and seek amendments (or temporary waivers) to their covenants before those covenants are tripped, rather than afterwards, when the company is in default.