A checklist for preparing your loan application

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While thousands of American small businesses have been frustrated with the rollout of the CARES Act Payroll Protection Program, at least there East a program for them. For ETIs, that is to say those with between 500 and 10,000 employees, the aid plan promised by Congress has not yet materialized.

But if you wait for details before you start preparing your application, you’re making a big mistake, says Regina Lee, managing director of the Houston office of AlixPartners, one of the nation’s leading turnaround consulting firms. For more than 25 years, Lee has helped clients deal with the fallout from disasters, both natural and man-made (think fraud).

She says that although there are no details yet on the government’s program for medium-sized businesses – not even a name – there are clues as to what they are likely to be looking for. His advice: Start putting together your application process today. “Those who take a wait-and-see approach are probably not going to be very happy,” she says.

“We advise you to really apply best practices for business interruption claims when thinking about these CARES Act loans,” she says. Here’s some of what she’s advising her clients right now:

Check your insurance.

Lee advises companies to immediately review their insurance policies, if they haven’t already. Do they have a virus or pandemic exclusion? If these exclusions are maintained, the government will likely be the only place businesses can seek help in a timely manner. This will help you prove that you need CARES help.

Show how you’ve been hurt by Covid.

Sounds simple, but there are homework here. “You need to track extraordinary expenses, track lost sales, track costs that are rising due to issues that arise with your business closing.”

Revise all of your future-looking financial statements to comply with the terms of the loan program as it is generally understood today.

If you have planned a reduction in the number of employees, you should revise these projections to ensure that you retain 90% of your workforce at the required compensation levels, including benefits, until September 30. You must also be able to confirm that you intend to restore at least 90% of the workforce that existed on February 1, within four months of the end of the Covid 19 emergency. “Well , when is that going to be, right?” She says. “So it’s very, very difficult to do these pro forma financials, but we help clients through that.”

Determine how much you need.

Unlike the PPP, no guidelines have been issued on how much a company can request from the mid-sized program. A range of options is probably a good idea. “We’re doing our best to help our customers figure out what to ask for and that’s based on these revised forms.”

Make several versions of the financial statements.

Since no one knows exactly what will exactly be needed from the pro-forma statement, Lee suggests that you make multiple versions so that you can “pivot” quickly and be in a good position to get your claim at the start of the month.

The most important: take clues from the airlines.

The requirements for applying for airline industry loans under CARES are already well-defined and offer a good guide for other businesses seeking help, Lee says. “There are 13 requirements and 11 of them are pretty generic that I could apply to any business,” she says.

If you can get the following in order, you should be in good shape for the application process:

  1. The company’s existing debt structure, secured and unsecured and
  2. Debt service schedules for the next three years
  3. Details on job level, headcount, compensation as of certain dates – March 24and was the measurement date for airlines, she said
  4. Proposed headcount and compensation structures
  5. Financial statements for three years and pro forma financial statements for the remainder of 2020 (as described above)
  6. Scale of losses covered “These are the losses they think they have suffered or will suffer as a result of the Coronavirus”, she specifies. “With airline guidelines, these losses must be per post with details of what caused the loss.”
  7. Airlines are asked to describe the type and value of the securities they put in place to back the loan.
  8. A schedule of what you plan to do with the loan proceeds.
  9. Quantitative information about their financial needs for the remainder of 2020, including income, operating costs, credit and how the loan will meet needs, and other sources of funding they have to meet those needs .
  10. An operating plan for the rest of the year: How does this loan fit into the business plan? In addition, you must demonstrate that the loan “was taken with prudence”.
  11. Details of any cost restructuring plans they have, including contract staffing.

Airlines have also been asked to provide proof that they cannot obtain credit elsewhere. “A lot of companies look at us and raise their hands and say, how am I going to prove that I didn’t get a loan? Should I go roadshow to a group of banks and ask them to reject me? It’s right, it’s very, it’s a very high hurdle and we hope it stops.

“These are the 11 points that apply to airlines that are probably going to apply to large companies. We help our medium-sized customers get ready the same way,” she says, “simply because that’s all we have at the moment.

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