This small business had massive growth potential. But it needed to overcome cash flow issues around tax time. Here’s how they solved this challenge quickly.
COVID-19 Funding Report: Oil and Gas Companies
FundThrough is an alternative finance company that specializes in invoice funding for small businesses across the United States and Canada. We have a large number of clients engaged in the oil-and-gas industry and have worked with them to help provide funding during COVID-19.
While we are eager to help qualified customers to get paid on outstanding customer invoices, we also want to help companies in other areas of their business.
Our team is a diverse and inclusive group of seasoned executives, economists, consultants, customer support representatives, marketers, engineers, and professionals who have provided their input to assist customers in the oil-and-gas space and preparation in this report.
In the following pages, we address many challenges we anticipate small businesses in the energy patch will face in the months ahead.
These include workforce issues, supply chain challenges, funding concerns, and other related matters. In the following pages you will find FundThough’s thought leadership, links to outside resources, and the tools you need to succeed in the months ahead.
If you have additional questions or concerns, please contact FundThrough’s support team at [INSERT] or [email protected]
COVID-19 - The Economic Challenge for Oil and Gas
According to consulting firm PwC, the most mentioned concern about the current coronavirus outbreak isn’t the possibility of a recession.
It’s the financial impact on the company (when CFOs were asked to choose three concerns).
Roughly 75% of respondents to the inaugural COVID-19-CFO Pulse Survey mentioned “the financial impact including effects on results of operations, future periods, and liquidity and capital resources” as a top concern.
Fear of a recession drew 70%. Supply chain disruptions (21%), falling consumer confidence (39%), and fraud risks (just 3%) paled in comparison to worries about company finances.
The survey assessed financial leaders from energy firms in both Mexico and the United States at a difficult time for the global oil-and-gas markets. The outbreak of COVID-19 has effectively sapped a decade of demand around the globe, according to the International Energy Agency.
Meanwhile, the recent price war between Russia and Saudi Arabia fueled a dramatic downturn in crude prices in markets around the world. Although OPEC+ and G-20 nations have come together to cut roughly 10% of global output for several months (then weaning cuts through 2021), the world is very oversupplied with crude. [Read more by the World Bank.]
It will likely take a prolonged period for U.S. WTI crude prices to return to the $50 levels realized at the start of 2020. Suppressed crude prices could have a very negative impact on production companies and the small businesses that service them. Also, the price volatility will impact the bottom line of midstream and upstream companies connected to the supply chain.
In the second quarter, the U.S. and Canadian economies could experience a downturn in GDP of 15% to 30%. Meanwhile, in the United States, unemployment rates may face levels surpassing the Great Depression. There remain a significant number of uncertainties for the future.
But we at FundThrough are in the business of helping small companies in the energy sector navigate tough challenges. We begin with an assessment of funding sources for small companies from Federal, traditional, and alternative lenders.
Emergency Small Business Funding
Across the United States, small businesses are reaching out to traditional financial institutions in the search for loans, financing, and emergency funding. The $2.2 trillion in stimulus from the U.S. government consists of hundreds of billions of dollars in loans – but these funds are very competitive and require a lot of information and documentation.
FundThrough has prepared a Thought Leadership post on Traditional Bank Lending with a few tips and tricks to come prepared for a bank loan. In today’s environment, it is best to arrive over-prepared with documentation about your business, yourself, and your goals. Remember, however, that traditional financial companies reject 80 % of all small business loans. In today’s environment, however, the U.S. government and banks are doing all they can to ensure that companies have access to the capital they need to continue operations and keep employees on staff.
The following are the primary resources for the current Small Business Lending programs. There are four programs to highlight under the Small Business Association.
Small Business Administration: Paycheck Protection Loans (CARES Act)
The law provides $350 billion for this loan program. The new SBA-backed program – authorized by Congress in March – aims to help small businesses with expenses. The following rules apply:
- The SBA may forgive loans used to keep employees on the payroll.
- Companies filing as 501(c)(3)s will also be eligible for this program.
- The Federal government will forgive eight weeks of cash flow, rent, and utilities at 100% up to 2.5x average monthly payroll.
- Businesses and 501(c)(3)s with less than 500 employees are eligible for this new loan.
- Sole proprietors, independent contractors, and self-employed individuals may also be eligible.
- All Physician practices are eligible.
- Small businesses in the hospitality and food industry that have less than $500 million in gross receipts with more than one location could also be eligible at the store and location level if the store employs less than 500 workers. This means that each store location could be eligible.
- If your franchisor appears in the SBA’s National Franchise Directory, assistance will extend down to the franchisee at the store or location level.
You can learn more about Federal resources like the CARES Act here.
U.S. Small Business Administration (SBA) Disaster Assistance
The U.S. Small Business Administration is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19).
SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance. They can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. Learn more, right here.
The Federal Reserve Main Street Lending Program
The Federal Reserve created a $600 billion lending initiative for mid-sized businesses as part of the Main Street Lending program.
It offers four-year loans to companies employing up to 10,000 workers. Revenues must be lower than $2.5 billion per year. Borrowers can defer principal and interest payments for up to a year. Click to learn more.
U.S. Department of Energy (DOE) Loan Programs
Title XVII Innovative Energy Technology Loan Guarantee Program
The Department of Energy supports loans for the development of clean energy technologies. Loan Programs Office (LPO) is authorized by the Energy Policy Act of 2005. Companies engaged in alternative energy cane apply loans ranging from $1 million to more than $1 billion for advanced fossil, advanced nuclear, renewable energy and energy efficiency projects that employ “new or significantly improved technology.” Go here for more information.
State by State Resources
Under the SBA, the group is working with microlenders to assist companies.
Click here to find intermediaries in your state.
Finally, stay on top of state-by-state announcements on emergency funding programs. Governors will provide press releases from their offices as new information emerges.
- For example, in oil-rich Texas, the Governor recently announced that the U.S. government included the entire state of Texas in its Economic Injury Disaster Declaration. This designation access to its Economic Injury Disaster Loan (EIDL) program, which will provide long-term, low-interest loans to qualifying businesses across the state. For more information, visit the SBA here.
Check back for regular updates to this guide. The White House and Congress are exploring additional ways to provide support to the U.S. energy industry. If specialized or targets financial options become available, we will add them to this section of our guide.
Canadian Federal Resources
Like the U.S., Canada has provided several funding options to small business owners across the country. Let’s explore these options below.
Canada Emergency Wage Subsidy (75%)
- Launching soon, this program covers eligible employers who suffered a drop in gross revenues of at least 30% in March, April or May, when compared to the same month in 2019. Eligible employers would include employers of all sizes and across all sectors of the economy, with the exception of public sector entities.
- Funding includes 75% of the first $58,700 normally earned by employees – representing a benefit of up to $847 per week. The program would be in place for a 12-week period, from March 15 to June 6, 2020. We could see changes to this program in the weeks ahead due to pressure from lobbyists in Ottawa. Check back for more information soon.
Canada Emergency Wage Subsidy (10%)
Also launching in the near future, this program will cover Canadian-controlled private companies that meet the government’s definition of a small business. The definition currently states that the business has taxable capital of $15 million or less in Canadas.
Funding consists of 10% of the remuneration paid from March 18 to June 20. This represents up to a maximum subsidy of $1,375 per employee and $25,000 per employer. That said, we could see changes to definitions of small businesses in the future.
Business Credit Availability Program (BCAP) - Canada Emergency Business Account
The Business Credit Availability Program is designed for companies whose payroll expense in the 2019 calendar year was between $50,000 and $1 million. Funding is up to $40,000 ($10,000 of which can be forgiven) and the program charges 0% interest until December 31, 2022.
Companies must make payment by 2023. Once again, the program may change the definition of a small business, so check back for regular updates. For more information, visit Scotia Bank’s coverage of the program.
Business Credit Availability Program (BCAP) - SME Loan and Guarantee Program
Finally, the SME Loan and Guarantee Program is designed for firms with 2019 payroll expenses ranging from $50,000 to $1 million. Companies can qualify for up to $6.25 million with a “commercial” interest rate over the next 10 years. For more information, visit here.
Finally, Prime Minister Justin Trudeau recently said that more information on a financial aid package for the oil and gas sector is coming soon. We will add that information to our report when we have more information.
Access Private Funding Resources
Your lending options are not limited to the Federal Government or local state organizations. Also, opportunities exist outside the traditional financial industry. We have identified two extensive lists of funding options for our Canadian and U.S. audiences.
If you are a Canadian company, please visit Hockeystick’s list of Active Funders in Canada.
This list helps match companies with potential funding options and provides insight into the various alternative finance companies and the types of businesses that they fund.
American companies may consider this list of Federal, state, and private resources available from Gusto, a payroll company, and partner of FundThrough.
The company updates this document regularly, so check back each day to determine the mix of public and private resources in your state.
Both lists also include many alternative finance solutions like invoice factoring or peer-to-peer lending. If you are unfamiliar with alternative lending, we have put together a full guide for beginners.
Our Alternative Finance Guide explores a wealth of ways to access funding outside of traditional outlets.
They include (but are not limited to) – equity financing, crowdfunding, venture capital, and invoice financing.
For example, FundThrough is an alternative finance company that specializes in invoice factoring.
We provide small business funding within 24 hours using unpaid client invoices.
Every time that you create and send an invoice, you have created a financial asset that can be used as financial collateral for funding. Companies get the full value of their invoice paid less a small fee. This gives companies the immediate boost of working capital they need to get back to work and stop fretting about client payments.
Best of all, it puts business owners in complete control of their finances – paying invoices on their terms – and gives them the peace of mind that money will arrive in their accounts by the next day.
If you are experiencing longer payment terms, slow-paying customers, or simply want an alternative to the delays of traditional financing, this is a fast, easy alternative to other forms of lending during this ongoing uncertainty.
At FundThrough, we have helped thousands of customers transform their businesses through strong economic times and their most difficult times. It is the reason why we are a trusted partner of QuickBooks Online and hundreds of small businesses across North America.
If you are looking for funding today or in the weeks ahead, consider FundThrough as a practical alternative. You can get started right here.
Part Two: Workforce Management
Employees are looking to their leaders for guidance on how to continue operations. The following provides several essential best practices for dealing with COVID-19.
Protecting Your Workforce:
Your employees’ safety is paramount in today’s environment. Ensure that any employees who must continue to work on-site have the proper safety equipment and practice the property social distancing methods to ensure their health.
The Department of Labor recently released guidelines from the Occupational Safety and Health Administration. The guide provides risk assessments of major job categories and offers a list of best safety practices for all workplaces.
Employ a Continuity of Work Plan
Given social distancing guidelines, workplace flexibility will be essential to the survival of all businesses in the future.
Virtually every aspect of your organization requires an assessment to determine the impact of financial and operational risks and potential supply chain disruptions. We have attached a short guide to approach your continuity plan and to help you assess risks outside your control now and in the future.
Also, Forbes provides essential insight into building your post-COVID strategy.
Communicate with Employees
Now more than ever, employees are looking for leadership and honesty about the current situation. You must take the time to continually inform your employees about the risks outside your control and the challenges you face together.
If employees are working in a remote environment, it is critical to conduct regular conversations with them (if only once a week) and answer questions about the state of the business and economy. Honesty and information will help reduce stress and help improve openness and transparency in the workplace.
We have provided additional reading on how to effectively speak with employees on matters related to work-life balance, education, and other issues.
We have also submitted best practices around email communications, issues of health and wellness, and updates related to company policies.
Evaluate Employee Costs
If the pandemic extends deep into 2020, you may need to make difficult decisions in the future about the future of your business.
One of those key challenges may be the decision to temporarily layoff or furlough employees. Understanding the difference between the two scenarios and the legal requirements is essential.
Part Three: Financial Management
Your working capital is the lifeblood of your organization. Money must be coming in the door to meet expenses. However, too often, distractions can pull them away from proper financial management and quick, regular audits that can keep you on top of payments.
If you’re in the energy business, you know the ebbs and flows of the industry. But have you planned your spending habits accordingly, managed customer relations with cash flow in mind, and sought ways to reduce your costs?
At a time that COVID-19 has exposed many holes in the energy industry, here are a few important considerations to get you started.
Customers might be dodging you. Or you might not want to talk to someone late with a payment. The months ahead are a critical time to be open and transparent with your customers about your relationships. You must remain positive and work diligently to ensure that you can work together.
OnDeck provides a list of best practices on email communications, including customer journeys, personalization, and promotions. Also, if customers are failing to pay on time, consider several payment options to address their cash flow challenges. Score.org provides a quick guide to handling late payments, especially in the type of environment we face today.
Do Your Financial Assessment Immediately
The first thing to do financially is to assess your profitability and cash flow generation in this low-price environment. Analyze the expected capital going into your business – but prepare for delays and or slow-payments for your business. If you were to receive payments 30 days later than your traditional payment terms, examine how this will impact your cash flow. Make sure to assess for all current and forecasted operating expenses, taxes, and other purchases and payroll obligations you might face.
Meanwhile, if you are engaged in oil and gas production, you must assess cash flow at a variety of prices, assuming you are not hedged. Knowing how further declines impact your production and inventory are essential to your bottom line.
If you expect to face negative cash flow issues, you might need to divest some assets, make difficult decisions about employees, or seek alternative funding methods that we have listed above. Remember, outstanding invoices are a financial asset that can be monetized immediately. Invoice factoring companies like FundThrough can pay you the full amount of the invoice minus a fee and do the waiting for your slow-paying customers instead.
Bolster Funding Potential
Keeping your cash flow positive is the key to ensuring you always have enough working capital to operate your business and meet your obligations to creditors, employees, and clients. But you might need access to capital from time to time, especially in a market where oil prices are impacting your customers.
By now, you know that you have access to alternative financing companies in addition to government-backed and traditional banking loans. But keep in mind that creditworthiness is a critical part of all decisions made by lenders. There are three important things that you must remember when seeking capital.
- Credit Scores Matter: The credit scores of both the business owner(s) and the business are critical to an application. Businesses benefit from a score of 160 or higher on the Small Business Scoring Service.
- If your score is too low, fix your credit history promptly. Contact credit agencies to determine ways to boost your scores. You should pay off existing debt and avoid new inquiries or forms of credit. You should also work to remove any marks from collection agencies.
- Cash Flow is King: Poor cash flow (or profitability) is the most common reason why banks reject applications, according to Pepperdine University. Banks are critical of firms that fail to generate the consistent income needed to pay fixed and variable expenses. Business owners can boost cash flow by improving invoice practices and/or consider slashing costs and building an emergency cash fund (among other methods)
- Have Solid Collateral: Remember, banks accept both personal and business assets as collateral, so compile as extensive of a list as possible. Standard collateral may include real estate, equipment, or existing inventory. But keep in mind, banks prefer more liquid assets that can be sold quickly if a default occurs.
Improve Invoicing Practices
Getting paid on time for the work you’ve done is critical to your cash flow. If you are invoicing your customers – and waiting 30 to 90 days for payment – you must adopt several best practices to ensure your money arrives on time. For example:
- According to Due.com, sellers are three times more likely to get paid if they add their company’s logo to the invoice;
- Sellers are 1.5 times more likely to get paid if they put the payment terms on the invoice; and,
- Sellers are eight times more likely to get paid if they put a due date on the invoice (1 out of 4 invoices do not carry a due date, according to the study).
We have covered these best practices and more at the FundThrough blog.
At times like these, the little details matter. To ensure that you are not overlooking anything as you prepare invoices, use this checklist to ensure you cover all of your bases.
Reduce Costs and Streamline Processes
Finally, we have to focus on expense management.
Are you thinking about buying new equipment today, or is leasing a better option given the low cost of capital and favorable tax advantages?
Are you sending invoices in the mail, or are you using new technology to ensure that they arrive on time in your customers’ inboxes? What about payment practices? Have you considered taking a business credit card that would help extend your expense terms by as much as three weeks?
These are the questions that you can answer in our recent guide on managing cash flow.
Part Four: Succeed the Post-COVID World
Finally, we want to stress that we will get through this economic crisis and related pandemic. There is a light on the other side of this challenging period.
We have shown resilience in the past. We will return to normal and thrive again as individuals, business owners, and entrepreneurs. For this reason, you must think about your plans when we resume business in this country. Let’s explore our final chapter in our Small Business Guide for Energy Small Businesses.
Start at Home and Plan Ahead
Assessing the current economic environment will be a busy task for company leaders in the future. However, we already see dramatic technological shifts in remote working environments that are placing strains on some companies and helping others thrive due to their foresight and policies. Workplace planning, digital skill education, IT infrastructure, and contingency plans will be major corporate priorities in the future. Assess how COVID-19 has impacted every facet of your organization and reexamine your full company policies.
You can get started with a simple guide from PwC.
As we noted, customer communication will be essential in the months ahead, and not just because of payment. Now is the time to assess those customers and think about them with a long-term strategic vision.
How will you address your core markets moving forward, and what secondary areas of business might you now operate to diversify revenue streams moving forward?
Universities across the United States and Canada are assessing the social, financial, structural, and operational impact of COVID-19 on companies of all sizes. Consulting firms across the U.S. are engaged daily in new projects to help companies navigate this crisis and shift their strategies to ensure longevity and success.
Regularly assess COVID-19 case studies from institutions like Harvard Business School upon their release, and read business case studies and thought leadership from firms like McKinsey Global Institute and Baker McKenzie.
These studies will not just cover the energy sector, but a broad spectrum of organizations that must cope with the current environment.
Become a Buyer
If you are in a strong cash position, you may see an opportunity to purchase assets at low valuations soon. With banks reducing financing in the energy space, they are seizing assets. Also, the U.S. government may find itself holding large amounts of natural resources and surplus property across many commodity sectors.
The Small Business Association operates a Natural Resource Surplus program. It is designed to work with federal agencies to ensure that small businesses get a fair chance at purchasing assets that include: forest projects, strategic materials, royalty oil, leases to commodity patches, and surplus real and personal property.
The program operates through several U.S. agencies. You can learn more, right here.
Diversify Your Funding Strategy
The COVID-19 economic downturn will provide a critical lesson for small business owners about how they fund themselves. Your largest clients do not care where you get your funding – they simply care that you succeed, survive, and can help them thrive on the other side of this crisis.
In the past, some firms might have been hesitant about the use of invoice financing services, but we have proven to be a reliable partner to hundreds of companies across the United States.
If you have just one slow-paying customer or a client who has extended payment terms, think about what that money could do for your business today. Instead of waiting for 30, 60, 90 – and as we’ve seen in the energy sector – up to 120 days – you can get your funding within 24 hours and put that money to work immediately.
It’s not just a simple, fast way to fund your business. It’s also a practical one.
You can read more about companies that used FundThrough to solve their working capital challenges on our blog. These case studies include the story of Alaska Thermal Fabrications, which used FundThrough to meet payroll needs and never missed another paycheck for an employee ever again.
Also, we wish to highlight Steel River Group, a leading Indigenous owned and operated construction and service management firm specializing in the Canadian oil and gas sector. They, too, have a similar story about the use of invoice factoring to meet their cash flow needs. Learn more here.
Other Key Resources
Several additional resources exist to help small businesses in the energy sector succeed and thrive in this environment. Take a few minutes to explore these sites for further insights into COVID-19 and its impact on the oil-and-gas industry.
HFS Research: COVID-19 Self-Isolation Research Survival Guide
The Prepared: How to Prepare for Coronavirus
United States: COVID-19 Federal Contractor’s Survival Guide
Sheppard Mullin: COVID-19 Federal Contractor’s Survival Guide
McKinsey: COVID-19: Implications for business
Oil & Gas Journal: COVID-19 Impact on the Oil & Gas Industry
Winston & Strawn: FAQ: Employment-Related Issues Stemming from COVID-19
We are in the first inning of what could be the defining economic event of our lifetimes. That is a powerful thing to say for
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