EBITDAC and your Bank and other PPP Stuff
Earnings Before Interest, Taxes, Depreciation, Amortization and Covid. How are banks looking at this?
In this Issue:
EBITDAC vs. EBITDA and the banks
The impacts of Covid on Insurance
PPP Update – From fire hose to garden hose
Restaurant Restoration Fund Update – 186,200 applications in 2 days
EBITDAC – If you are a borrower, what is your bank thinking? They are thinking that once PPP goes away, what will your financials look like? BC (Before Covid), banks would use EBITDA as an approximation of cash flow. This is basically income before interest and taxes (EBIT) and adding back depreciation and amortization (non-cash items). They then compare this to your debt payments to arrive at a ratio; generally speaking, banks are looking for at least $1.20 in EBITDA for each dollar of principal and interest payments. When calculating your quarterly ratios most banks are backing out the PPP or other grant payments to get a clearer picture of your ability to service your debt AC (After Covid) so you should look into that on your own. I think a lot of borrowers will get a “pass” on weak numbers in 2020, but the expectation from banks are that Q3 and Q4 of 2021 should have marked improvement.
Insurance premiums seem to defy the adage “what goes up, must come down”. Marsh McLennan put on a zoom call (trigger word!) on Group Captives. I have to tell you that from the call as well as from clients that utilize a group captive type of insurance, it can really be a money saver. However, being part of a captive means you have to be diligent in the way you operate your business risk and maintain your safety record but the savings are significant. The catch? Your current premiums should be north of $200,000 annually to benefit from being part of a captive. On another insurance call, part of the conversation included worker’s comp and Covid. While worker’s compensation insurance has enjoyed a significant period of rate decreases, the expectations in the industry are that the impact of Covid claims generated from workplace contact will impact worker’s comp premiums for the immediate future.
PPP – Earlier this last week the SBA made the surprising decision to halt all funding for PPP loans coming in through most banks. The pot for the 2021 PPP pool was over $284 billion. Up to May 2, the SBA had funded $258 billion. They have left a small spigot open for community financial institutions that allocates $8 billion for those lenders. Those lenders can be found here, but some of those lenders stopped taking applications some time ago because they were overwhelmed. What’s going on??!! When I find out, I’ll let you know, but now the big banks stopped, it will be hard to get them going again.
RRF – In the first two days of the program, the SBA received 186,200 applications for the Restaurant Restoration Fund grant. About half came from women, veterans and minority owned businesses and about a third were from establishments with less than $500,000 in revenue. The SBA said applications should take 14 days to fund. If you are some type of food establishment or know someone who runs some type of food establishment, get them on this program now! That $29,000,000,000 will go in a big hurry.
