When I woke up on Jan 1, 2020, I’m sure many of you were like me; excited for the year ahead, both from a personal and business perspective. The economy was strong, rates were low, business sentiment was positive. Little did we know that 2.5 months later, a global health pandemic would usher in a whole new way of doing things and force us to pivot quickly to make important decisions regarding our businesses.
Working in financial services during the ’08-09 recession was a challenging feat, to say the least. But there were warning signs prior and more of a path towards stability. In this COVID-19 environment, it is the uncertainty that causes the most concern. Being in the banking industry, I know we view this time as an opportunity not only to bring guidance and some form of stability to clients, but to be a better corporate citizen during this crisis than the prior one.
When I heard the CARES ACT had passed, and that the Paycheck Protection Program, specifically, was going to be facilitated thru the banks as very near-term liquidity relief, I couldn’t believe in a matter of days, banks would prepare to launch their portals and accept tens of thousands of applications. Bankers and their colleagues worked around the clock for weeks to submit applications and secure funds before they ran out so clients could keep their businesses afloat, and more importantly, their people employed. Banks put people before profits, staffing up and leveraging technologies, knowing there would be no money made on these loans. The cost of technology infrastructure alone to support that volume of loans in such a short time, was extraordinary.
As you can imagine, the work didn’t stop there. Banks continue to support companies whose businesses literally went to $0 revenue overnight and others that face continued uncertainty week in, week out. The banks worked tirelessly to respond to requests to defer principal and interest payments, sometimes up to 6 months, without penalty. As a business owner, could you allow a client up to 6 months to pay for product? Banks waived covenants, extended amortizations, approved delayed receipt of tax returns and financial statements, gave guidance on projections, and the list goes on. Bank lines of credit were drawn on, and in many cases, companies would be pressed to pay these lines down in the near term. Client risk profiles went up, but banks continued to lend. And while everyone was focused on credit and liquidity, banks also helped bring great ideas on the treasury and cash management automation side to companies whose manual processes left them vulnerable to fraud and unable to perform certain actions from home.
Although the appreciation is felt, the biggest challenge has been dealing with situations where the bank has done all it can reasonably do to bring relief. The conversation then turns to what ownership can do to further preserve liquidity via additional cost cuts, equity injections, deferrals, etc. Those are hard conversations. Financial institutions look carefully at the amount of debt capital support vs. equity capital support is needed, especially for companies in industries that are experiencing prolonged impacts. Ultimately it comes down to balancing risk, especially as banks’ cost of capital is inherently on the rise. Many bankers had conversations similar to those that business owners and managers have with their clients. If raw material or general input costs go up, you talk to your partner and explain why pricing will change or why other terms need to be amended. It’s interesting that the bank has the same financial decisions to make about loaning money to a company, as a company has in deciding to whom they are going to sell their products or services. It is times like these that the banks determine who will be long term clients, as there is true understanding and partnership as the base of the relationship. It can’t be a situation where the bank’s support is a one-way street. These conversations are what make continued strong relationships and allow for the banks to be there for a client in both good and bad times.
As we enter the back half of 2020, I wish for a crystal ball to see where things will stand three, six, nine months out. As more companies potentially struggle with a second wave of the virus this Fall, the banks will continue to do all they can to support COVID impacted companies, while still remaining compliant with the regulators. It will be very interesting to see if the narrative holds that banks were the “helpers” during this time vs. the “big bad bank” narrative that often is at our heels. We will have to wait and see.
What I’ve valued the most thru these challenging times is the relationships deepened and the equity built that wouldn’t have otherwise occurred. Surely, the frustration over long hours worked, and the overall uncertainty of an end to COVID-19 is overwhelming. But we have learned to make quick decisions, re-evaluate and assess the changing landscape of our businesses, have tough conversations, and lean into the partnerships that will be even stronger on the other side.
Sarah Vehlow is a Senior Vice President – Relationship Manager within PNC’s Corporate and Institutional Banking Group, located in downtown Chicago. Sarah joined PNC in August 2016, after over 12 years in various underwriting and banking roles at JPMorgan Chase. In Sarah’s 16 years of banking experience, she has been responsible for managing and growing client relationships and converting new names to clients in a variety of sectors, including manufacturing, distribution, service, and retail.
Sarah holds a Bachelor of Business Administration in Finance from the University of Illinois at Urbana-Champaign. She grew up in Arlington Heights and currently lives in Rolling Meadows with her 6-year-old twin boys, 9-month-old son, and her husband, who is a police detective in suburban Chicago. She is also the Co-Chair of the United Way of Metro-Chicago’s Women United Executive Council
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