The Financing and Banking Sector: Current Challenges and Future Outlook
June 26, 2020
By Matei Odobescu
It is no secret that COVID-19 took a toll on economies globally. The Financing Forum Webcast hosted by EisnerAmper, Lawrence Financial, Polsinelli PC, and Scherzer International, which took place June 12, discussed the topic and how it has dramatically affected the banking and financial sectors, as well as the future outlook of funding new deals in the post-pandemic world.
- Gautham Deshpande, Partner, EisnerAmper (moderator)
- Heidi Ames, Senior Vice President, North Mill Capital
- Michael Ganann, Managing Director, Head of Retail Finance, BMO Harris Bank N.A.
- Randy Mitzman, Vice President, Origination and Operations, Assembled Brands
- Charlie Perer, Head of Originations, SG Credit Partners
Below are key highlights from the discussion.
Current State of the Lending Business:
- In the ecommerce space, customer acquisition costs decreased due to reductions in advertising costs, while revenues increased as consumer demand for online shopping grew. As a result of Paycheck Protection Program (PPP) loans and aggressive cost cutting measures, many ecommerce brands even saw a few months of profitability.
- Lenders prepared in advance for the downturn and were selective in their lending. The PPP loans helped stabilize most of the borrowers, but the next portfolio loans test is yet to come, since PPP loans are used for payroll rather than to pay off vendors who still need to be paid.
- Lenders noted that weighted average risk rating stayed the same as before the pandemic, but the lenders are on high alert for any deterioration in the market.
- Retail stores are performing better than expected. Stores are opening sooner than they originally anticipated, helping companies weather the initial negative effects of the pandemic. As they reopen, retailers are starting to see improved cash flow and now have the ability to pay down some of their debts.
Outlook for the Lending Space:
- In the retail space, there is a lot of hope that social distancing is working; at the same time, there’s also concern that the physical reopening is happening too soon. The risk remains for another spike in the spread of the pandemic that could result in another shutdown.
- There is optimism that the appraised value of the retail inventory will increase as people return to shopping in the physical environment. “Revenge buying” -- a concept that people are frustrated from sheltering in their homes and now want to get out and buy -- benefits retailers.
- Lenders are monitoring accounts on an ongoing basis – even using software in real time -- to see if the borrowers have enough cash or assets to survive.
- As companies are running out of the PPP funding, lenders will have the opportunity to step in and fill the financing gap.
- Private equity-backed companies have easier access to capital than family-owned businesses. Lenders are focused on filling this financing void for family-owned businesses.
- There is an expectation for an increase in the number of credit funds.
Lenders will remain disciplined and cautious, while closely monitoring their portfolio and any new developments in the market.
The forum surveyed the attendees to gauge outlook on the state of their respective businesses. Questions included:
“How is your business doing?”
31.9% - Great, and we are finding new opportunities.
0.0% - Our business folded.
61.7% - Up and down, but we will make it through.
6.4% - Other
“What’s your opinion of the stimulus measures taken by the U.S. government to stem recessionary effects of the coronavirus pandemic?”
11.3% - Support the measures (CARES Act, PPP, Main Street lending, etc.) and believe they will have lasting beneficial effects.
43.20% - Happy with the measures but worried about the ripple effect within the next few months when the incentives and payments expire.
20.50% - Concerned that the government is printing money and future generations will pay the price, i.e., short-term gain but long-term pain.
25.00% - All or none of the above.
“How will the coronavirus pandemic affect the office space needs of your organization?”
26.00% - Not at all – we are or shortly will be back to the same space and configuration.
19.60% - We are making adjustments that will require us to increase our space requirements in order to promote physical distancing.
34.80% - We will seek to reduce our space requirements and have all or most of our workforce continue working from home.
19.60% - None of the above/I don’t yet have a clue.
To access the complete webcast presentation, listen to the on-demand recording.