Your Loan has Been Assigned to Special Assets...What Now?
These unexpected costs are encountered exactly when the company can least afford the added expense, but from the lender’s perspective, it is being compensated for its increased risk and costs of managing a loan to a company experiencing financial distress. In the event that the company is able to secure replacement funding from an alternative source, you should expect that lenders who are more risk-tolerant charge higher rates.
• Focus on cash.
Conserve cash. Put aside your GAAP thinking cap, and think CASH. For the time being, forget about accruals, depreciation and other non-cash factors. Establish a starting point and track cash from this point forward.
Special Assets will want to see a 13-week cash flow projection, in which you recognize cash receipts and disbursements during the week they will occur, giving you a clear picture of the sufficiency of your cash position for the entire upcoming quarter. You will also need to update this report weekly, and provide an explanation for any material variances of actual vs. budget.
Demonstrate to the bank that its position will not deteriorate further. Depending on the level of urgency, Special Assets will be much more focused on the cash flow model than your financial statements during the crisis period. Your lender will want to know that you can meet payroll and other critical cash needs without additional borrowing and that it will remain adequately protected by the collateral. Your 13-week model should include a section indicating the bank’s collateral position at the end of each week and how this affects the company’s availability of cash.
Use the cash flow projections as a tool for planning the changes you need to make to return the business to cash-flow positive. It’s best not to perceive the 13-week projection as just another troublesome requirement from the bank. The reason the bank wants this report is the same reason you should take it very seriously—cash is the life blood of the business as it goes through the crisis period. Pay very close attention to this tool.
Mark Hahn is a managing director and founder of Graphic Arts Advisors, a boutique strategic financial advisory and consulting firm focused exclusively on the printing, packaging, mailing, marketing services, brand management, and related graphic communications industries. With more than 35 years of graphic communications experience in the areas of finance, operations, sales, M&A, and general management, Hahn has served as chief financial officer, chief operating officer and other senior positions with several commercial printing companies, as well as founding and eventually selling his own printing company.
The firm assists company owners and management, as well as their lenders, investors and shareholders in the following areas: mergers and acquisitions, sale of business, strategic and financial advisory, capital structure and funding, financial analysis, interim and turnaround C-level management, business valuations and serving as consulting experts. Hahn is the author of The Target Report and is regularly published and quoted in printing industry trade and management journals.
Mark Hahn can be reached at (973) 588-7399 or firstname.lastname@example.org