Debt Management During Covid-19

The impact of COVID-19 has hit the entire world including the major economies like the European Union and the US. The fallout of this will surely have a major impact on the Indian economy. During this crucial COVID-19 phase, it is evident that many business activities have come to a halt in accordance with the added precautionary measures. While this has greatly impacted many industries and our daily lives, we would like to assure you that this pandemic will be tackled better and we will emerge stronger.

While taking care of our family’s health and safety is important to all of us, it is just as important to us at InCorp to take care of your company’s financial health and business interests. We are dedicated to help you to reassess your business operations with a view to not just survive through these trying times but to seize the opportunity to flourish and also tap into the remedies available as the government unveils more soon.

What can one expect on the restart of businesses post lockdown?

COVID-19 (Coronavirus) is having an unprecedented and devastating impact on businesses. Travel restrictions, disrupted supply chains, subdued demand and labor issues have unsettled the businesses.

It will lead to the following-

• Lesser Demand and Supply
• Employee lay-offs
• Default and/or renegotiation of contracts
• Liquidity issues thereby severely impacting cash flows
• Delays in servicing of Debt
• Working capital finance being blocked and new finance being difficult 

What are the impacts of this on businesses?

Most businesses (particularly MSMEs) are vulnerable whenever normal economic activity ceases, despite governmental interventions to limit economic upset.

Several business entities would be grappling with –

• Declining profitability
• Poor/negative cash position
• Delays in receivable liquidation
• Falling DP position and blocking of working capital limit
• Difficulty in meeting term debt EMI obligation
• Increased scrutiny by lenders

How should one tackle this situation?

A proper financial plan is a prerequisite in this time of crisis. As we navigate these complexities together we can assist you in preparing and executing a robust plan which will take care of your cash flows freeing your mind to concentrate on your business. We have formed a specific team of expert advisors who would devise a custom plan for your business after studying the specific challenges facing your business.

What if one was already having an overdue EMI prior to the lockdown?

An interesting scenario arises in case of the already stressed accounts which were overdue prior to the lockdown. The otherwise available 90 day period before being classified as NPA by the financial institution has shrunk as the lockdown has prevented the economic activity and thereby the generation of funds to honor the repayment obligations. The RBI has clarified that the lockdown period would be excluded in the calculation of 90 days period for the calculation of the NPA.

How can Incorp help you?

We have started a series of emails whereby regular updated information/announcements and analysis thereof along with financial implications of the lockdown & COVID-19 on the business and strategies for the mitigation of these challenges are being shared.

Further Incorp can assist you in debt management as follows-

Financial Distress Assessment:

• Health check-up of the business by reviewing the financial position and the key financial indicators as at 31^st March 2020
• Scrutinize the current working capital limits utilized
• Assess the current drawing power available, if any, based on the current guidelines of the banks
• Advise on the strategy for the way ahead

Planning, Forecasting and Budgeting the Cash Flow:

• Identifying key forecast assumptions and preparation of robust cash flows for the next 2 quarters
• Understand the actual business position and its cash inflows, assess the available headroom and budget the peak deficit cash flow
• Advice on the strategy to raise funds to meet the deficit in the cash flow
• Syndication of temporary/ad-hoc working capital limits from the existing bankers
• Assisting in regular cash flow tracking and reporting the deviations and advice on a further course of action due to the deviation

Debt Restructuring:

• Identify flexibility with existing lenders.
• Assist in the re-negotiation with the lenders for restructuring the debt using up to date knowledge of relief announced by RBI.
• Explore additional financial options to refinance the existing debt using our expertise on Bank loan syndications.

Recovery and Future Preparedness:

• Strategy and advice on various modes available under law for the collection of funds stuck up in receivables
• Analyze the key risks of the business and possible steps to mitigate the risk factors going forward.