When PPP Isn’t Enough


The Paycheck Protection Program (PPP), along with other federal and state initiatives, helped many business stay afloat during the COVID-19 pandemic.

Now that the U.S. Small Business Administration (SBA) stopped accepting new PPP applications from most lenders almost a full month before the $292 billion program’s application deadline, where can a company turn?



Even for those that survive COVID-19 and were able to secure PPP funds, it may not have been enough. For many companies, lack of liquidity will remain a significant problem, impacting normal business operations.

Lower staffing levels, disruption in the supply chain, stretched receivables and payables, and decreasing inventory levels all contribute to out-of-formula positions and covenant defaults with lenders.

PPP money was only a band-aid meant to cover payroll and some overhead expenses for a short period and unlikely enough to meet all a company’s future cash needs. Many will need additional support or investment from their lender or a third party to restart or continue operations.

And those companies that have failed to make the necessary long-term changes in their liquidity structure may find themselves not having a viable solution for their financial needs.



Lenders that have processed PPP loans are now dealing with the PPP loan forgiveness applications and have not addressed the myriad of expected issues with their borrowers. The latest round of PPP loans has extended this problem.

Sometime during the third and fourth quarter, however, lenders will review their loan portfolios and decide which clients they will work with to restructure their loans due to covenant defaults, out of formula loans and/or requests for additional financing.

Others will be asked to seek an alternative source of financing. 

To buy additional time to refinance their loan relationship, they may be asked to enter into a short-term forbearance agreement which may include additional terms, reporting, and higher pricing.  Some businesses may even be forced to sell or close their operations.  Multiples, however, will be lower resulting in a discounted selling price from pre-COVID-19 valuations.



Merging with another company is a consideration, but it can take time to find the right partner, conduct due diligence, and negotiate a mutually acceptable agreement. Others will have no other option but to file for a State Receivership or bankruptcy and reorganize.

Bankruptcy can be very expensive, and few survive over the long term. Additionally, the stigma of working with a company who is reorganizing while in bankruptcy may not have support from their lenders, vendors, and customers to stay in business. Some companies will just close their doors forever. 

Management should rely on trusted advisors (attorney, CPA and/or turnaround consultant) to explain the best options available.

Accurate and timely financial and collateral information must be available to prepare a plan and help negotiate a deal either with the bank or an alternative source of financing.



If a bank says no, and is unwilling to continue working with a business, there are alternative sources of financing for businesses requiring working capital.

This option is usually in partnership with a factor or asset-based lender who finances the invoices to pay off the PO lender and provides additional working capital going forward.

An asset-based lender leverages the receivables, inventory, machinery, equipment, and real estate of a business on a formula basis to pay off its existing lender and provide additional working capital.

These lenders provide financing to companies with high leverage, weak balance sheets or those that have experienced losses but are still viable.

These businesses should be able to show their operating performance and plan to return to profitability.

While the pricing is almost always more than a bank, asset-based lenders can provide critical and essential access to working capital.



It’s best to begin thinking about financing options early before the cash need arises. Lenders need time to conduct diligence, get approval, and document the agreement.

Waiting too long to obtain financing can result in further disruption and missed opportunities to operate and grow the business.

It’s smart to have a Plan B to finance working capital needs when PPP isn’t enough.


Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.

The Housing Market and Credit


We all know that house prices are increasing while the availability of inventory of houses is shrinking around the country; while at the same time, unemployment remains at a high level with pandemic-related unemployment driving both the economy and political policymaking.

The article below was written by Glen Weinberg of Fairview Commercial Lending, a leading hard money, non-bank lender in residential and commercial investment real estate. Glen can be reached at: info@fairviewlending.com.


10 million Americans are behind on their mortgage payments, with the majority of these late payments occurring in FHA loans. At the same time, Millions are out of work, yet house prices are increasing in most markets. What was in the new forbearance agreement? How does a Forbearance impact credit? Why are forbearance agreements the leading driver of increasing house prices?

The White House said that it would extend a ban on home foreclosures for federally backed mortgages through June 30. President Biden had earlier extended the moratorium, which had been set to expire at the end of January, until the end of March in a series of executive actions on his first day in office.



The Biden administration also said it would give homeowners more time-through June 30-to enroll in a program to request a pause or a reduction in mortgage payments.  The federal Cares Act signed into law last March by former President Donald Trump let borrowers postpone payments on federally backed mortgages for as long as 12 months.

Homeowners will now be able to receive up to six months of additional mortgage payment forbearance, in increments of three months, for those borrowers who entered forbearance before June 30, the White House said. Borrowers who enter into such plans can skip payments if they suffer a pandemic-related hardship but have to make them up later.

In essence, borrowers could refrain from paying a mortgage / making payments for almost two years as the new order allows borrowers up to 6 months of additional forbearance as long as they enter into the agreement before June.



Forbearance is when your mortgage servicer or lender allows you to pause (suspend), or reduce your mortgage payments for a limited period of time while you regain your financial footing. The CARES Act provides many homeowners with the right to have all mortgage payments completely paused for a period of time.

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and guidance from federal agencies and the GSEs, there are two protections for homeowners with federally or GSE-backed (Fannie Mae or Freddie Mac) or funded mortgages:

• First, your lender or loan servicer may not foreclose on you until at least June 30, 2021. Specifically, the CARES Act and the guidance from the GSEs, the FHA, the VA, and the USDA, prohibit lenders and servicers from beginning a judicial or non-judicial foreclosure against you, or from finalizing a foreclosure judgment or sale. This protection began on March 18, 2020, and now extends through at least June 30, 2021.

• Second, if you experience financial hardship due to the coronavirus pandemic, you have a right to request and obtain a forbearance for up to 180 days. You also have the right to request and obtain an extension for up to another 180 days (for a total of up to 360 days). You must contact your loan servicer to request this forbearance. There will be no additional fees, penalties or additional interest (beyond scheduled amounts) added to your account. You do not need to submit additional documentation to qualify other than your claim to have a pandemic-related financial hardship.



Credit card companies, auto lenders, and other lenders are providing similar relief to their clients via forbearance or modification plans. Over 100 million borrowers are in some type of forbearance on an account. About 10 million borrowers have missed mortgage payments.

The Cares act prohibits lenders from reporting the payments as missed payments and therefore loans put into Forbearance do not affect your credit score. Unfortunately, what is happening in the marketplace is drastically different.

Banks have pulled back sharply on lending to U.S. consumers during the coronavirus crisis. One reason: They can’t tell who is creditworthy anymore. By early April, 33% of banks that responded to the Federal Reserve’s senior loan officer survey said they had increased their minimum credit-score requirements for credit cards over the previous three months, up from 14% in January. Bank respondents tightened lending standards for all consumer-loan categories tracked by the survey.

Furthermore, TransUnion recently began selling data to help lenders determine whether consumers have been affected by the pandemic, including data on people who have received a deferment or other assistance. According to the legislation, a forbearance can’t be used to deny credit to someone, but there are loopholes. For example, a lender in their underwriting might require the last 6 months of paystubs, mortgage statements, etc… and use this information to deny the borrower.



Nobody is publicly talking about it, but a forbearance is a red X mark for lenders and will prohibit, in many cases, any additional advance of credit.  For example, a bank is not going to give someone a new home loan if their existing mortgage is in forbearance. This is, in essence, keeping borrower’s stuck in their existing houses because without the ability to get a new loan, why would someone sell their existing house?

10 million houses have essentially been taken off the market as the owners are financially stuck as they cannot get new credit.  Furthermore, 106 million borrowers are unable to do anything due to the red mark on their credit from the forbearance. Many of these borrowers might have deferred a credit card payment as opposed to their mortgage so the true number of homes off the market is exponentially greater than 10 million.

This drastically reduces inventory and will keep a large quantity of properties off the market for some time. The reduction in inventory in already tight markets will lead to price increases as demand has stayed relatively constant and supply has been constrained further.

A large number of the loans in Forbearance are FHA loans which are low down payment loans focusing on the first time buyer and lower price points. The majority of defaults will occur in FHA loans as we saw during the last recession. The number one driver of default is equity. The more equity is in a property, regardless of other variables, the less likely the property will go into foreclosure. With very little equity in most FHA loans over the last several years there will be a plethora of defaults.



The next question is how many of the borrowers in forbearance will ultimately default?  Nobody really knows, but if we assume that 40% end up defaulting (the rate we saw in the last recession on subprime loans like FHA) after the forbearance runs out, this will amount to roughly 4 million houses in foreclosure; to put it in perspective in 2008 3.1 million foreclosure filings were made.

This leads to the next question; how will the market react to the large increase in new inventory? The majority of properties entering foreclosure should be at the lower price points where there is a huge demand for houses as building costs have risen faster than incomes making it almost impossible to drastically increase inventory to meet the demand.

In solid markets like Denver or Atlanta the market should be able to absorb this inventory either through end users or corporate housing companies that buy suburban houses for long term rentals.

Continuing forbearances now for over 18 months is merely delaying the impending problem that 10 million plus are experiencing. There have been fundamental changes in the economy and many sectors are not coming back anytime soon if ever.  Unfortunately, the economy is not like a light switch will turn on and miraculously everyone gets current again and is able to make up the missed payments.

There is no doubt there will be millions of foreclosures soon (how soon depends on the moratoriums). The only question that is outstanding is how each market will absorb this inventory and what impact there will be on prices. In most cities there will be little impact, but we suspect there will be many markets that will struggle with the inventory leading to market declines.  We will get to see how this unfolds sometime later this year.


Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering or Receivership/Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.


The Law of Unintended Consequences


Nearly all of us have heard the term “unintended consequences”, but we often do not have the temperament or sufficient experience to avoid them.

We certainly saw examples of that this month where the unintended consequences led to not only an attack on the United States capitol, but also leading to federal criminal charges, significant losses of political contribution and loss of business for certain organizations.

In 2018, in the publication The Library of Economics and Liberty, Robert Norton wrote, “The law of unintended consequences, often cited, but rarely defined, is that actions of people, and especially of government, always have effects that are unanticipated or unintended.”



We have seen in recent weeks, just a few of the unintended consequences of the activity related to the attack on the US capitol:

The second impeachment of the President
• The loss by the Trump Corporation of contracts with New York City of contracts generating $17 million per year.
• The loss of most, if not all, banking relations of the Trump Corporation
• Hundreds of Federal charges and potential charges related to the mob at the Capital
• Job losses for participants ranging from blue collar jobs to attorneys and college professors. Politicians have lost book contracts and large campaign donations.
• Loss of access to social media platforms.
• A move to disbar the former Mayor of New York and another prominent attorney, accompany by significant lawsuits.



But, you say, what does that have to do with me?   Particularly if you manage a mid-size business, not at all connected with these larger political issues.  However, in the article quoted above, the same type of thinking that led to these unintended consequences in government, also affects business in numerous ways.

When the unintended consequence of a decision is favorable, there is never an issue. The favorable outcome is usually considered a bonus. But when the unintended consequence is adverse, depending on the impact, the decision process is questioned as is the individual who made the decision.

In the article, Norton focused on the causes of unintended consequences, three of these which are in the control of the decision maker. These are ignorance, error, and immediacy of interest.

In both ignorance and error, leaders make decisions on issues without considering the unintended consequences, or before needed information is obtained. These are decisions that are not well thought out nor operationalized.



Consider a company in which the management of a business unit presented their plan to enter a new market without any consideration of the unintended consequence of a competitive response and how it would impact the company’s market entry.

A question to ask: Is the market growing at a sufficient rate to absorb a new supplier without a competitive response? Will competitors respond by price cutting, or in a different way?

What differentiates this new product in the marketplace to limit a competitive response?  Why would customers switch buying from their incumbent supplier and decide to buy from the company?

How competitors might respond to a new market entry is unknown. A leader will often need to make a decision, but the information desired to make a fully informed decision is not available.

Before making that decision, effective leaders listen to the opinions of their experts and they fall back on their own experience, common sense, and good critical judgment.

This is how they de-risk a decision and minimize the chance of unintended consequences.



Immediacy of interest describes the type of decision where “someone wants the intended consequence of an action so much that he purposefully chooses to ignore any unintended effects,” to the peril of the decision maker and the organization.

NASA’s decision to launch the space shuttle Challenger on Jan. 28, 1986 against the advice of the Thiokol engineers is an example of a decision driven by immediacy of interest. NASA had promised Congress a too aggressive and unrealistic launch frequency.

The pressure to meet this schedule resulted in a catastrophic decision to launch the Challenger in adverse temperature conditions, well below the ambient temperature for which the solid rocket booster O-rings were designed.

Upon hearing Thiokol’s recommendation to delay the launch due to risks to the astronauts and the shuttle, one of the NASA officials stated, “I am appalled by your recommendation.” 

Another NASA official stated, “My God, Thiokol, when do you want me to launch – next April?”  NASA launched Challenger, and shortly after the launch the O-rings failed, resulting in an explosion and the catastrophic deaths of seven astronauts and loss of the shuttle.



What is the cause of immediacy of interest type decisions?  Certainly, hubris is one cause.  Dictionary.com defines hubris as “excessive pride or self-confidence, arrogance.  Arrogant leaders are rarely if ever successful over the long term.

Another cause of immediacy of interest decisions is the pressure to act, which in and of itself is a way of achieving results. However, at what risk and at what cost?

How many times do we read in the press about unethical or illegal acts that were committed due to the pressure to get something done? These situations eventually almost always become public, adversely impacting the reputations of the individuals and organizations involved.

The reputations of organizations may recover over time. Those of the individuals never do.



How can you avoid immediacy of interest decisions.

Surround yourself with people who will tell you what they think, not what you believe you want to hear.

Have experts that both have the expertise to advise, but do not have the same vested interest in the decision.

They know more about the unintended consequences than you do.

And remember, what you do reflects not only on you, but on your organization and your colleagues as well.

Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering or Receivership/Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.

Happy Holidays

During a wacky and challenging year, we’ve all had to adjust to our ways of working, communicating and staying in touch.

As always, we’ve appreciated your readership and comments on our blog throughout the year.

All of us at Revitalization Partners hope that you and yours are staying safe and healthy. We’re looking forward to 2021 to see how all of you successfully blend the old and new normal. We’ll be resuming our blog after the new year.

Happy Holidays!!

Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering or Receivership/Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.

Where is the Liquidity During the Pandemic?


Despite the fact that there appears to be substantial debt and investment money available, small business loan approval percentages from large banks dropped from 13.5% in September to 13.3% in October while small banks approved 18.4% of funding requests, down .1% from September.

These changes highlight the challenges of small business owners searching for capital during the pandemic.  “Securing small business funding remains challenging at the moment.” states Rohit Arora, CEO of Biz2Credit.

Many business owners are refraining from applying for credit because they are unsure if their “forgivable” PPP loans are going to be forgiven. This is a time of great uncertainty for companies from sole proprietors to firms with millions in gross sales. Many companies are struggling to just hang on and are likely to go under if they don’t receive a financial lifeline to survive until the pandemic ends.



The US Bureau of Labor Statistics report of early November found that non-farm payroll employment rose by 638,000 in October dropping the unemployment rate to 6.9%.

Despite these figures, small business owners are still very worried. Many states are considering new restrictions due to the cresting wave of Covid 19 creating a state of limbo for all sized companies.

Despite the declining rates of loan approval in banking, two categories of lenders rose slightly: Institutional lenders approved 22.2 percent of loans in September with alternative lenders approved 23.3% of loans in the same month. 

For these lenders, loan activity is starting to come back. Since banks have been more cautious, borrowers looked to other sources.  Since institutional lenders and alternative lenders are seeking yields, they are willing to continue to provide funding in these uncertain times.



Private money lending has always thrived during economic downturns.  While the coronavirus pandemic and its widespread economic effects are historically unprecedented, tightening standards and restricted liquidity in the conventional lending space are not new.  During cycles when conventional lending opportunities contract, private lending expands, as borrowers and investors alike look for new options.

It is important to note, however, that private debt is not fully immune to the damage caused by the severe economic impact of COVID-19. In the last couple of months, a number of private debt funds and capital providers either temporarily or permanently shuttered their operations due to a freeze of their capital sources, poor underwriting practices, and/or non-performing loans, resulting from a coronavirus-related forbearance or default.

For those that are fortunate to be actively lending today in the private debt environment, the landscape is riddled with market delays, stemming from rate renegotiations, expanded due diligence, short- term extensions on maturing debt, re-underwriting loans, and arbitraging greater spreads for investors. In addition, since private money – perhaps wrongfully so – tends to be the choice of last resort, there is the continual shopping for cheaper debt from traditional lenders.

Despite those unavoidable delays, most purchases and refinancing’s currently in the market require the execution speed that only private lending can deliver- agility that is proving quite beneficial.

For example, there are a significant number of cash-out transactions, as some borrowers seek to inoculate their operating businesses with cash infusions to get them through the current economic hurdle.



Some borrowers are looking at this time to expand their financial coffers in anticipation of ready-made, perhaps even unprecedented, shopping spree opportunities of distressed, but quality, real estate and other assets.

Other borrowers may be preparing for what they believe could be a slow reopening and reintegration process, or another wave of reinfection and more closures in the coming fall or winter seasons.

Private lenders are approaching the new market challenges in new and different ways. Some private lenders are pressing the pause button to focus on managing their existing portfolios and negotiating workouts on any non-performing loans.



Others are actively transacting, but they are implementing modifications to their existing guidelines. Today’s “new normal” in commercial loans and real estate lending may include all or a combination of the following:

• Price increases
• Reduced loan-to-value thresholds
• Removal of vulnerable property types, such as retail and hospitality from their pipelines
• Reduced or eliminated subordinate financing
• Requiring or increasing interest reserves
• Applying full recourse in instances where non-recourse was the normal



Prudent private lenders aren’t standing by to see what happens.

They are adjusting their valuation methodologies and underwriting standards to ensure that there is ample equity coverage to account for the new economic, political and societal stresses on collateral.

With the inertia-busting agility of private capital along with the guidance of trusted advisors, investors and lenders can continue to move forward and thrive, even in the midst of a global pandemic.


Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering or Receivership/Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.

How Credit Insurance Impacts Liquidity


Our appreciation to the Calibre Group, a Pittsburgh, PA private equity group providing advisory services and direct investment, specializing in manufacturing and metals, for providing much of the information in this blog.

As we all know, companies have been hit hard by the economic downturn caused by the global health pandemic and subsequent nationwide shutdowns.

During this downturn there has been a lot of focus on weak demand and labor issues. But one issue that deems to have gotten less focus is trade credit insurance or lack thereof.

Many companies directly and indirectly rely on trade credit insurance to support operations. It is an insurance product that is vital in helping buyers and sellers conduct transactions in a smooth and efficient manner. Without trade credit insurance, the flow of goods between buyers and sellers could be restricted by a lack of confidence and liquidity.



As the prices of goods continue to rise, the access to liquidity becomes more important for companies. The increase in prices combined with poor financial results during the pandemic, will lead banks to become more wary in extending credit to their borrowers.

As such, banks are going to be more focused on the collateral value of the borrowers.

For companies that have struggled during the pandemic, banks may be inclined to require inventory appraisals. And the banks may lean on appraisal companies to find reasons to recommend lowering advance rates. One way to do this is appraisers estimating longer liquidation times due to real sales volumes.

This means higher liquidation costs and net liquidation values. In order to accommodate the reduction in net orderly liquidation value as a percentage of cost, lenders will lower inventory advance rates.



As inventory advance rates get lowered, it will be critical for companies to continue to receive high advance rates on their accounts receivable, while also being able to extract longer terms on their accounts payable.

In many cases, AR advance rates and terms on AP are driven in part by trade credit insurance.

Banks will provide higher advance rates on insured receivables.  Likewise, if a vendor can get higher advance rates, they will be more lightly to provide extended payment terms.

However, what we are hearing from contacts at banks and insurance brokers, is that in this time of need, trade credit insurers have declined to issue new policies or have tightened coverage significantly.  Some insurers that are offering coverage are reducing coverage limits.



In times of turbulence and uncertainty, senior lenders tend to get nervous. When they get nervous, they almost immediately focus on downside protection. This typically results in increasing blockers/reserves and finding reasons to lower implied advance rates. Lower implied advance rates come in two forms: (i) lower advance rate percentage, and (ii) changes to “eligible” collateral.

With regard to accounts receivable, banks traditionally have standard definitions of what constitutes an ineligible receivable. These are typically receivables from offshore customers, contras/receivables subject to set-offs, cross-aged, significantly past due, and concentration.

Occasionally banks may also restrict advance rates on customers with deemed credit risk. However, in some cases borrowers can get their banks to advance on certain “ineligible” receivables if they have credit insurance (effectively converting ineligible collateral to eligible collateral). Additionally, there are many instances where uninsured receivables may get an 80-85% advance rate, while insured receivables may get a 90% advance rate. Depending on the premium cost of the insurance, this can be attractive to certain companies.



With trade credit insurance drying up, there are many companies, particularly those with high customer concentration or international customer and/or vendor exposure that may see their liquidity evaporate in the near-term.  A company that typically carries $10 million of receivables, of which 25% are insured, could see its borrowing base decline by between $250 thousand and $2.25 million.  In normal circumstances this would be problematic, but it is exacerbated when liquidity is already weak, inventory advance rates are being reduced, and prices are on the rise.

In addition to lower implied AR advance rates, the lack of trade credit insurance is also detrimental on the purchasing side. Just like you are concerned about your customers, your suppliers are concerned about you. If you are normally able to get 60-day terms from your material vendors, you may find those being reduced to 30 days in the absence of their ability to get insurance on you.  A company that makes $50 million of material purchases per annum, would see its liquidity reduced by $4.1 million in that scenario.



As a company owner or executive, it will be imperative to maintain excess liquidity given the uncertain times, and the potential reduction in advance rates from inventory appraisals and lack of trade credit insurance, coupled with a need to increase inventory purchases.

For opportunistic companies with ample liquidity, the next few months may present an opportunity to acquire competitors that run into liquidity issues or acquire assets from companies that need the capital to survive a liquidity squeeze.



Lastly, we do not believe banks have fully countenanced the impact of the pandemic on their performance. There have been prohibitions on residential real estate foreclosures and landlords have not been allowed to evict delinquent tenants.

Building owners have foregone rental payments across all sectors including retail while the work from home initiative stands to leave swaths of commercial office space barren.

Banks anxiety to control loss is likely increasing, with continuing tightening of liquidity requirements.


Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering or Receivership/Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.