’08 Recession V. COVID-19 Pandemic
We thought it might be interesting to compare and contrast the ’08 recession to the current COVID-19 pandemic. We found some notable differences:
In ’08, with no credit available in the market, banks tightened up and businesses had trouble finding financing. The government bailed out the banks, but banks didn’t pump much of that money back into the economy. The economy went down, sales went down and the recession ran deep; many companies went under, and others had a slow climb back up.
The pandemic has been very different. For one, banks are healthier and there’s more availability of capital. While banks were bailed out in ’08, this go-round, the government has bailed out businesses through its PPP, ERC and EIDL programs. These programs have led to quite a lot of liquidity in the market making the pandemic a much easier situation from which to recover than the recession. While the Retail sector has been hammered, the Commercial sector has fared much better. Yes, sales have declined but have rebounded much faster than in ’08.
In terms of asset based lending (ABL), the industry fared much better in ’08 than now. During the recession, with no capital availability from banks, ABL was the alternative financing source of choice. During this pandemic, however, with the government pumping money into businesses, the need for ABL has diminished significantly. Banks have hung on to deals they normally would have exited but we believe as they look at year-end results, banks will ramp up the exit process beginning in the second quarter of this year.
When all is said and done, probably the biggest difference between the recession and the pandemic is the availability of capital and liquidity in the market. Economically speaking, the pandemic is the easier situation from which to recover.
About Celtic Capital
Companies looking for working capital to cover operating expenses, fund growth, increase buying power and take advantage of vendor discounts and rebates turn to Celtic Capital. With an appetite for the more complex transactions, Celtic Capital has a history of success in crafting creative, flexible asset based financing solutions from $500,000 to $5 million with no financial covenants.
As an independent lender, working with companies nationwide, Celtic Capital is willing and able to alter price and deal structure and expand lines of credit to handle its clients’ increased revenues; and when cash flow is an issue, will look toward providing an inventory facility to help offset lost cash flow.