Growth Lending Market, COVID Edition

A few sound bites below on the venture / growth lending market, COVID edition.  Hope you are "Hanging in There."

Lender Sentiment:
 
Trying to be helpful

  • amenable to IO resets / covenant relief, within reason

  • banks open to new or expanded facilities for well positioned clients (w/ tighter covenants)

  • avoiding price gouging -- relationships still matter

  • some non-banks facing significant portfolio / liquidity issues, while others viewing this as a time to ‘solve for yes’ and shine

Re-visiting underwriting...and slow

  • priority remains existing portfolio

  • PPP for banks = massive resource redeployment

  • credit decisions can require 2-4 weekly committee meets (vs 1)

  • extra upfront diligence – look thru of customer health in particular

  • let’s see how the next quarter plays out

Re-visiting terms

  • lower leverage, tighter covenants

  • higher rates, slightly 

  • significantly more warrants

  • some non-banks offering structured equity options

On the Company Side:
 
Exploring all available capital formation paths

  • equity now massively more expensive 

  • considering debt to shore up cash

  • PPP offers immediate, short-term relief

  • requesting IO extensions or covenant relief

  • requesting expanded bank lines

Formulating (and executing) Covid financial plans

  • slashing new sales expectations; higher churn

  • significant opex cuts

  • extending cash runway > 18 mos

  • creating viable path to profitability / reasonable burn

Slow to raise capital from 3rd parties

  • pulling other levers first

  • prioritizing working with existing lender (and/or equity investors)

  • exceptions for those companies that are unleveraged or truly insulated from SIP 

Takeaways: 

  • think more broadly; severe market dislocation and inefficiency = wider range of options

  • not the time to worry about the little things or scrape for bps of interest rate

  • create backup options - term sheets can be flimsy

  • forecasts not adjusted to the new reality are fastest way to a 'no'

 

 

 

 

 

 

 

 

 

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