Hey Tech — Help Us Crowdsource Funds to Small Businesses
How do we make sure our favorite neighborhood restaurants, bars, and shops make it through COVID-19?
As more and more states roll out shelter-in-place orders, local businesses have shuttered and/or reduced payroll to stem the bleeding from COVID-19. Just around the corner from my neighborhood the other day, I spotted restaurant cooks from adjacent restaurants, where I get my local fix for falafel, ramen, and deli sandwiches respectively, sitting together on the curb looking forlornly at the ground and taking drags on cigarettes.
Given that coronavirus is stable for an unusually long time on surfaces, I’ve been minimizing my exposure outside and trying to cook my own food — but what I wouldn’t give for one of Wooly Pig’s breakfast sandwiches, a donut from Bun Appetit, or coffee from the Richfield when we make it through to the other side. I sure hope that my favorite small businesses make it too.
Research conducted by JP Morgan notes that 50% of small businesses have less than 27 days of cash float on hand (in minority communities, small businesses have even less). Even if businesses have closed down or reduced services temporarily, owners still have ongoing costs to maintain — lease or loan payments, wages, utilities, and inventory, just to name a few.
Existing solutions to help small businesses from the private and public sector are limited.
Ironically, the Families First Coronavirus Response Act makes it tougher for small business owners to survive the pandemic: employers with up to 500 employees must give two weeks of paid sick leave for COVID-19-related reasons and 12 weeks of paid family leave for an employee with a minor child in the event of the closure of the child’s school or place of care (though there may be exemptions issued for employers employing fewer than 50 employees meeting certain conditions eventually). While the new law gives employers several tax credits to help offset the costs of providing necessary leave for employees, tax credits mean little for small business trying to weather the next few months.
To increase access to liquidity, the Small Business Administration (SBA) has recently started to offer designated states low-interest federal disaster loans (3.75%) to small businesses suffering substantial economic injury from COVID-19 which can be used for debt servicing, payroll, accounts payable and other expenses. President Trump recently announced that the SBA would be given $50B more in lending authority (twice what it had in 2019). This provides little comfort, however, where a small business owner is required to navigate approximately not-so-easy 14 steps and the federal government, likely not immune to COVID-19 staffing challenges of its own during a period of high demand, will need at least 2–3 weeks from application submission to arrive at a decision on whether to fund a loan.
Did your new favorite spot open up recently? Lack of operating history makes it tougher for that business to get its loan application approved.
The $2 trillion stimulus package passed on Wednesday evening is better in that it provides $350B in forgivable loans, in the form of 8 weeks of cash-flow assistance through federal guarantees with SBA-certified lenders to small employers who maintain their payroll during this pandemic. If the employer maintains payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven (and effectively turns into a grant). Provisions in the package attempt to expedite loan deployment by bringing additional lenders into the fold and streamline process.
If the business doesn’t have a regular line of credit or an existing relationship with a lender, however, it will be difficult for that business to benefit from the stimulus bill. And given continuing increasing infection rates in NY and CA, nascent situations just beginning outside of the coastal states and medical opinions that COVID-19 can resurge later in the year as the seasons change, the repercussions of this pandemic will continue long into the foreseeable future, well past these next two to three months.
Customers can play a meaningful part in providing small business short-term liquidity, and they want to, but the barriers are many.
There isn’t a way to physically “donate” money to small businesses, particularly if the businesses may have closed down temporarily. Heeding social distancing guidelines means we venture out rarely, and/or given a possibility for an economic recession, people are conserving cash. Some businesses may not offer gift cards or heck, even have much of an online presence. If there was a way for me to purchase gift cards online or load up an account balance (a la Starbucks app) to front money (0% interest rate) to the establishment that knows me by name (and my order), however, I would! And if I could write off part of the gift card to alleviate the business’s balance sheet liabilities (say $5 is a straight up donation and $20 goes towards credit), it would be nice to have that option as well.
Enter Yelp, Square, Google, Facebook, and Paypal, among others. These companies are equipped to verify actual businesses to help us avoid fraud and help create resources that enable small businesses to accept and receive funds, issue gift cards, and establish and track funding targets. Yelp has already enabled businesses on its platform to issue a “Call to Action” which could be adapted to help publicize gift card availability, discounts, and communicate any other updates to loyal clientele.
All of these technology companies also have sophisticated in-house legal counsel that can help small businesses navigate federal and state-specific consumer laws on gift card regulations and create default compliant gift card options. There are, for example, legal restrictions on expiration dates and dormancy fees, requirements to enable consumers to redeem gift cards for cash for balances below a threshold amount — issues that would be difficult for a small business owner to navigate alone.
COVID-19 is an unprecedented situation requiring all hands on deck. Let’s see what we can do together to get through this.