Merger & Acquisition Insights

One Thing the CARES Act Won’t Do For Your Trucking Business – An Interview with Patrick Eakins from ENGS Capital

Posted on April 09, 2020 by Spencer Tenney

Many of our trucking and logistics clients and industry friends are trying to navigate through this confusing time. To help bring financial thought leadership to the conversation, we sought out advice from Patrick Eakins of ENGS Capital. Below a condensed summary of our recent conversation.

Tenney Group: Much of our industry’s focus is currently on getting relief through the CARES Act. What is the relief designed to do and what will it not do for trucking business owners?

Eakins/ENGS: From what we have learned regarding the CARES Act and the PPP, it is intended to provide small businesses short-term relief from the potential inability to cover payroll/wage, rent/lease and utility expenses due to Covid-19.  The business still must go through a qualification/submission process to determine what they qualify for.  Regarding PPP, a company can qualify for 2.5 times their monthly expenses.  The amount granted can be forgiven if the company is able to fully document the funds were utilized for those above-mentioned purposes.

We are recommending to our prospects that they proceed through the application to determine what they qualify for in conjunction while implementing our senior facility.  Both the CARES Act and PPP have removed the requirement of providing a personal guaranty and/or sufficient collateral.

What the relief will not do is make core cash flow problems that pre-existed Covid-19 go away. It is really important for trucking business owners to clearly understand that the new debt (not the PPP which is forgivable) will need to be paid with future cash flows. In order to do this, owners must create operational efficiencies that lead to savings in order to offset the added debt service. Eventually the relief will run out and the same cash flow issues that existed before Covid-19 will resurface. Without material adjustments, servicing the new debt from the economic relief will not be sustainable – especially as many other costs in this industry continue to increase. My hope is that business owners will use this opportunity to dig in, do the necessary work, and become much stronger companies.

Tenney Group: How are trucking companies addressing their existing term debt with lenders to navigate this unprecedented time?

Eakins/ENGS: Most of what I am hearing recently is that trucking companies have been contacting their respective term debt lenders and asking for payment deferrals.  I am hearing most lenders have been amenable to 90 or 120 day extensions.  This does not absolve them of the responsibility of payment, but it defers the payments to the back end of the loan.

Tenney Group: What advice would you give to business owners for how best to manage or restructure debt during covid-19?

Eakins/ENGS: The best advice I would give owners at this time would be to overcommunicate with their lenders about what is going on in their business.  Ask the lenders if they are willing to defer principal and interest payments for a period of time.  If the company finances their day to day operations using an ABL facility or line of credit with a bank, I would recommend having a backup plan.  If the company is in violation/out of compliance with one or more of the financial covenants associated with the line, I think it behooves the company to be able to identify a new lender on their own prior to special assets being involved.

ENGS Commercial Capital offers a complete portfolio of Working Capital and Accounts Receivable Financing solutions for companies across the US and Canada, including factoring, AR financing, asset based lending, equipment finance and many more.

Tenney Group is an M&A advisory firm dedicated to the Transportation and Logistics Industry. Serving clients with $20M-$300M in annual revenue, Tenney Group assists business owners in exiting their business and allowing them to impact the lives of others.

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