As we all know by now, much of our day-to-day lives have been upended by the COVID-19 pandemic. We are being told by everyone everywhere - the CDC, the President, governors, mayors, public health officials - we need to flatten the curve of the virus' natural exponential spread by practicing social distancing and aggressive hand washing. If fear has not kept us out of restaurants, bars, gyms, salons, barbershops, stores, churches, synagogues, mosques, and the like, we are now facing mandatory closures of businesses, particularly restaurants and bars. Many governors have ordered all restaurants and bars close immediately, at least with respect to dine-in customers. Restaurants are valiantly adjusting their operations to focus on take-out and delivery service, but it likely will not be enough to reverse the drying up of cash in these businesses. Thousands of employees are being furloughed now or are at risk of losing their jobs soon, and many small businesses, including many that are normally viable and profitable, may need to look for some form of life support. Businesses that were already teetering on the edge of insolvency will be finally plowed under.
 
Businesses like restaurants, bars, and gyms will not be able to fall back on pent-up demand to cure their cash flow problems after the crisis subsides. Folks who didn't go to Costco to get the new television for March Madness will presumably still get it later. But no such delayed shopping surge will exist to help restaurants, bars, and gyms (and many other personal service businesses). Their patrons will have eaten, drunk, and exercised (or not) at home in the meantime.
 
For businesses on the edge of extinction, it is possible the very recent changes to Chapter 11 of the Bankruptcy Code will provide an opportunity to hang on through the crisis. On February 19, 2020, new Subchapter V of Chapter 11 (via the Small Business Reorganization Act or SBRA) went into effect. SBRA addresses many concerns that Chapter 11 has not been a workable alternative for smaller businesses. The new provisions have streamlined the Chapter 11 process for small businesses with less than $2,725,625 in debt, shortening the timeline for the plan confirmation process, eliminating U.S. Trustee fees and the expense of creditors' committees, and allowing owners to retain their ownership interests in their businesses. Although the new Subchapter V small business provisions alone will not help many cash-starved businesses stay viable, it will at least give them a new avenue to evaluate as a more workable Chapter 11 solution, perhaps avoiding a liquidation under Chapter 7.
 
Some help may be on the way from the SBA, in the form of low-interest loans under the Economic Injury Disaster Loan Program in certain states. And the recently enacted Congressional package of economic assistance and stimulus will enter the economy soon, albeit with unknown results for local mom-and-pop businesses. The SBA has a part of its website dedicated to the disaster relief loan program.  
 
And what are lenders to do in these times? Many banks, credit unions, equipment financers, and other credit providers will be responding to requests from their borrowers for renegotiated terms, delays in payments, temporary interest-only payments, and similar adjustments to their loans and credit arrangements. Unsecured open account vendors may themselves be vulnerable to cash flow disruptions resulting from their customers' inability to pay their accounts according to terms. Presumably, workouts will abound in the near future.
 
It certainly seems that businesses distressed by the COVID-19 world in which we live are in for a long haul if they are to stay alive. Both debtors and creditors will be looking for creative ways to get through what lies ahead.

Please contact the COVID-19 Task Force if you have any questions or need assistance.