The Great Opportunity: Business Evaluation

May 8, 2020

On October 5th, 2018, GRP Capital published Knowing our Clients, Knowing the Marketplace. As a small business navigating the Great Lockdown, it remains our mission to connect borrowers and lenders alike.

In the Great Opportunity series, GRP Capital will be teaming up with industry experts to draw ideas for growth. In Part One of this series, we explain how lenders are evaluating businesses and which businesses are more interesting to lenders.

Business Diversification:

Through the ongoing Great Lockdown, lenders have been evaluating their portfolio with a new lens. Lenders have to carefully curate balanced holdings. They have to ensure they are funding businesses that have had consistent revenue, balancing those that are more unsettled. In general, lenders are diversifying their portfolio. In this way, they can avoid concentration issues in one asset class.

Rick Patel, President of GRP Capital remarks, “In the post-COVID 19 world, lenders are likely to be reluctant to lend to industries that have been hit extremely hard by shutdowns and may be slow to ramp up again. At GRP Capital, we expect that fewer loans for businesses in affected sectors will be underwritten, at least in the 3rd quarter of 2020.”

What Businesses are Attractive to Lenders Now?

Instead, we expect that lenders will be more receptive to loan requests for businesses in the following industries:

• Businesses that appear to be “pandemic proof”: These include gas stations, liquor and convenience stores, fast food and drive through food services, delivery services, and medical institutions.

• “Essential” businesses: Typically these include child care centers for essential workers and hotels which house essential workers. In addition, this may include senior living facilities for keeping both well and sick populations separate. Other businesses in the this category are those in the medical, laboratory, and manufacturing sectors.

Operations that have adapted successfully to the “new normal”: Lenders may look favorably at businesses that have pivoted in the post-COVID 19 world. An example would be restaurants that have successfully made the switch to all delivery and all curbside.

Despite lenders’ increased focus on future economic cycles, there are still lending options available for businesses with adaptive operations.

Next week we’ll review what borrowers can do to demonstrate personal strength.

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