In the midst of the recent pandemic and global economic crisis, real estate tech startups have been faced with extraordinary financial and operational pressures. In a recent CREtech Talks: Financial & Operational Perspectives to Assist Startups During the Pandemic webinar, Matt Barbieri of Wiss, Joseph Theis of Goodwin, and Dan Allred of SVB shared their views on how the new loan program can help businesses mitigate operational expenses and discussed strategies around baking, accounting and legal. The discussion was led by Ashkan Zandieh, Chief Intelligence Officer at CREtech.
In the wake of COVID-19, businesses of all sizes are struggling in a sea of confusion and misinformation about the government-sponsored CARES Act, providing $2 trillion to businesses and individuals affected by COIVID-19, and the Payroll Protection Plan also known as the PPP Loan program, a $350 billion loan program to help small businesses.
“It’s been a rough couple of weeks and it’s certainly been hard for everybody,” said Dan Allred of Silicon Valley Bank.
As of March, Silicon Valley Bank, or SVB, has offered hundreds of millions of dollars in debt relief, as well as loans, to help its startup-heavy client base during the coronavirus crisis.
“I think everybody is affected by this crisis,” said Joseph Theis of Goodwin. “A lot of our clients are doing some scenario planning in terms of what if the crisis doesn’t turn around in Q2 or Q3.”
However, as it relates to small businesses, loans are guaranteed by the Small Business Administration, or SBA and the current loan program has many current and potential applicants scratching their heads.
According to Theis, there’s a lot of grey. There are very few bright lines, very few black and white answers around SBA loans. However, the piece of the legislation that has received the most air time is the payroll protection loan program.
Businesses, including real estate tech startups, are looking at the stimulus package to help save where they can.
According to Joseph Theis, the Payroll Protection Plan, or PPP, is designed to help capital conservation. At a high level, you take a look at your average payroll costs over a twelve-month period, you can borrow two and a half times that amount. It’s a pretty cheap loan. It’s a two-year term with a one percent interest rate. It’s guaranteed by the SBA, so there’s low risk for the lenders. And depending on how you use that money, you can get most or all of that money forgiven.
But what happens if more capital is needed beyond the original $350 billion PPP program?
According to Matt Barbieri, we’re starting to see that there’s a lobby to add another $250 billion to it, referring to the PPP loan program.
The additional allocation capital could be timely for many companies. However, as it relates to venture capital-backed companies, there are many unanswered questions.
Most venture-backed companies are designed to burn cash all in the name of growth. However, with sales coming to a near standstill, startups are changing the way they’re doing business to maximize their runway to survive the turbulent economic cycle.
“We’re basically seeing everyone focus on cash runway,” said Allred. “Most of them (venture-backed startups) are burning cash and focused on product development...market development and therefore designed to be cash-flow negative.”
Despite all the stress and challenges that real estate tech founders might be going through, our expert panelists do think winners will emerge with the obvious companies in remote access and remote connection.
“There’s going to be some clear losers, in the near terms, in hospitality and restaurants,” according to Barbieri.
“In terms of banking, I’m pretty bullish for online application and algorithmic lending,” according to Allred.
“In the real estate space, we’re going to be using property in a fundamentally different way than we have before...I think what comes out of the other side of this is a tone of innovation,” according to Theis.