Response in times of crisis

Uncertainty over demand and supply chains is creating liquidity pressure across businesses. Previously healthy businesses suddenly face running out of cash in weeks or months. Many businesses are facing imminent financial challenges and some are already contemplating insolvency. 


Understand what the requirements are to meet your short-term obligations. Evaluate funding strategies, options, markets, lenders and other sources of capital in order to meet your funding needs in the required time frame.


If you face finance shortages during a challenging environment, you may find yourself in a situation where you cannot meet your current liabilities. There are a number of points you should consider when facing such a situation.


When borrowing money from a bank or any other lending institution, you might be legally obliged by the contract to use the money for the reasons stated in the contract. Using this money for other purposes might constitute misuse of the loan and result in legal problems.

Selecting and raising external sources of finance

Access to debt funding could be significantly more challenging for certain businesses in future, particularly where government support is not available. Try to obtain debt funding advice now to help determine which current and future debt funding capacities and options could be vital for your strategic objectives.

Defining the amount of debt you can afford should be one of the first steps in getting a loan. Raising capital you cannot pay off will only lead you towards new liquidity difficulties and exposure you to new risks. Try to find out how much you can pay monthly and for how long – this will help you establish an amount you will not have trouble repaying. 

Taking on a loan from a bank or other financial institution 

When raising finance from a bank or other financial institution, you can apply for a secured or unsecured loan based on the type of investment you are trying to raise money for. 

Your investment may include: overcoming short liquidity difficulties, buying new fixed assets or starting up a new product line. 

In general, financing more serious investments would require a secured loan. However, such loans usually bring lower cost of capital and therefore could be more suitable for your business if you have decent certainty of being able to repay the loan.

When applying for finance, the financial institution will base their decisions on your current credit score and your business plan to determine your reliability and ability to repay the loan. 

You can also provide a cash flow forecast to show you can repay your debt on time. Make sure you have all the necessary paperwork (your business’s legal documentation, contracts to confirm your future revenues and so forth) to commence the process of getting the loan.

If you receive more than one offer (loan approval) then asses the long-term aspects of each proposal to choose the one that best suits your business needs. Also, consider your current position and determine whether there have been changes that could impact your projections. 

Alternative sources of debt capital

While they may be more expensive than traditional lenders, alternative capital sources typically provide more favourable lending terms. 

You may decide to turn to alternative sources of debt capital (typically non-bank lenders) that are well-suited to quickly analysing and funding businesses in financial distress. However, you should be aware that these may come with a high interest rate. Alternative sources of financing can range from suppliers to customers, as well as managing working capital.


Also consider efficient working capital funding, such as invoice finance and supply chain finance. As an alternative source of financing you can transform your financial supply chain to optimise working capital, realise significant savings, and improve supplier relationships.

If you are having problems with settling your current liabilities or collecting your receivables, consider your working capital strategy.

You can sell your slow-moving accounts receivables to financial institutions and enter into invoice financing to raise capital, or you can seek financing through your supply chain. The latter will enable you extend your payment terms and help you improve your cash flow.

Ensuring long-term sustainability

Consider ways to optimise funding arrangements for a less certain future. The need to understand and foresee the financial position under multiple scenarios will support your decision-making process. 


Whilst liquidity challenges might not be on the immediate horizon, they could arise in the medium term. Taking the time to work through those from a position of financial strength is likely to produce a better result than when financially stressed or distressed. You may also want to consider financial restructuring options if liquidity challenges persist.


Carefully evaluate your recovery strategy, as returning to how things were in the past may not be realistic. Consider what has changed following the crisis and adapt to the new circumstances. You may find that restoring everything to how it used to be is costlier and less efficient than embracing new processes and operations. For help tackling operational challenges following a change in circumstances, see here.

Future trading and operational conditions could look very different and render some products or services or even business units loss-making and unsustainable. It should not be assumed without thorough debate and challenge that the business can or should return to its pre-crisis state in full. 

Challenge the commercial proposition and operating footprint to produce or deliver in a way that supports cash flow objectives and profitability – not just to restart all operations.

Given the changed trading and operational conditions impacting every business, it is likely some products and services will have become loss-making or cash-flow-stretching. Simplifying the commercial proposition to produce and deliver those that support cash flow objectives and profitability is essential.

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