With the pandemic causing uncertainty for businesses cashflows, many are turning to their banks for working capital.

A local wholesaler to the restaurant industry recently had an opportunity to shift its operations by providing food to organizations helping families affected by the pandemic. But while waiting for government funding for the program, the wholesaler needed money to start running the operation. 

It’s lender, Rockland Trust, changed the terms of the company’s credit facility so it could continue to access funds while it waits for payments. 

In its outlines, it’s a familiar story for many community banks – working with a business customer to find ways around temporary obstacles. But the COVID-19 pandemic has pushed these lenders into an unfamiliar space as they continue to try and meet their customers’ needs for working capital as payment cycles get disrupted. 

“What’s unusual is most often in the past our borrowers have had more certainty about when they’re going to be able to pay it back,” said Gerry Nadeau, Rockland’s president. “Today, they’re not so sure because they don’t know, and then there’s just so much doubt about what tomorrow is going to bring.” 

Smaller Firms Hit Harder 

Family-owned businesses in particular during the pandemic have encountered problems with changes to the sales cycle, Nadeau said. Suppliers in need of money might want to be paid faster, while customers might need to delay payments. 

One bridge to help these businesses with cash flow is a revolving line of credit, which gives businesses access to funds as needed that they then repay. Nadeau said Rockland Trust has provided new lines of credit to customers and adjusted the terms of existing credit facilities for other customers.  

One local packaging company recently had its line of credit increased after it learned that another company making a COVID-19 vaccine would need packaging for vaccines in the coming months. 

Banks are being forced to take a gamble that their businesses customers will end up getting paid, Nadeau said, but he added that businesses need to talk to their bankers to determine what products will work for their situation. 

“Clients need to reach out and call their banker and sit down and have a conversation,” Nadeau said. “You can’t go online and fill out a form and explain these times – you need to explain your story.” 

For Some, a Growth Area 

Rockland Trust has mostly worked with existing business customers during the pandemic, though it recently brought on a new relationship through one of its specialty product lines, security alarm lending. Nadeau said the company, Maryland-based Dynamark Monitoring, had learned that its existing bank wanted to make changes to their relationship. It reached out to Rockland Trust and recently closed on a $20 million revolving line of credit. 

Cambridge Savings Bank has also been offering lines of credit to new customers during the pandemic. The bank brought on Keith Broyles and Yvonne Kizner in April 2019 to build a new asset-based lending team.  

Broyles said in the six months since the pandemic started, his team has added a new customer each month. Some of the business originated from referrals from legal advisers or accountants who had clients working with Cambridge Savings Bank. Broyles said he also reaches out to local chambers of commerce and economic development corporations, like SEED, to let businesses know about the options.  

Because Cambridge Savings Bank had fewer than 10 of these relationships at the start of the pandemic, Broyles said the bank has been able to focus on new relationships while other banks with extensive portfolios of credit facilities have had to evaluate existing relationships. 

Most of their work is with family-owned businesses, like Mohawk Rubber, a Hingham-based tire sales company that recently closed on an $8 million credit facility secured by collateral.  

Federal Programs Struggle 

Even as banks see more of their customers turn to them for working capital, federal loan programs intended to supply this kind of credit appear to be struggling to meet needs. 

At the start of the pandemic, the Paycheck Protection Program provided businesses with working capital while the economy ground to a halt. The Main Street Lending Program was supposed to pick up where the PPP left off and help small and midsized businesses with cash flow. But the program has yet to have an impact.  

Through Aug. 31, only 118 Main Street loans had been issued, according to the Federal Reserve’s most recent data. Only two Massachusetts banks have originated Main Street loans so far: one for a local company and the other for a business in New Hampshire.  

Diane McLauglin

Nadeau said Rockland Trust has met with a few customers about Main Street loans, but all decided against the program. He said Main Street’s complexity is not well-suited to family-owned businesses, which often have unique needs that cannot be met by a product built around a matrix of guidelines. 

CSB’s Broyles said even as businesses recover during the pandemic, the ripple effect touches a network of vendors, suppliers and customers, indicating that businesses will continue to need help with financing their day-to-day operations.  

“There are options out there beyond your existing capital provider,” Broyles said. “Or if you don’t have a commercial loan today, it’s something to look into – there still are viable options for people in need of capital.”