4 Immediate Actions for Small Businesses Affected by COVID-19
We’ve heard it all: “It’s unprecedented,” “it’s scary,” and “the largest economic rescue package in human history.” Can we all agree to stop using the latest buzzwords and hyperbolic phrases and start thinking like the adaptive, dynamic, and free-thinking entrepreneurs and business owners we know we are? Commerce has never been about a straight line to a destination and COVID-19 is no different — running a company is setting a heading, packing the right gear for the journey, and then remembering how to act when you stumble upon that mama grizzly and her cubs. Do you play dead, run, or stand your ground?
Here at Masterplans, we have been keeping tabs on all the latest news from Washington, D.C., and how it affects small businesses so you can set your bearing. Our clients are calling and asking for advice about what programs are available, how they can apply for a loan, and how to stay viable.
Things are changing rapidly, so please recognize that our advice does not replace the counsel of your most trusted banker, legal advisor, mentor, etc. — we are just trying to set a course; these people will help you stuff your pack. Our goal is to be an honest, fact-giving resource to the businesses that need it most. To say it simply, all we can do right now is speculate about the implementation.
Unfortunately, there are a lot of scammers trying to take advantage of uninformed individuals; so it’s important to only trust reputable .gov websites and credible media outlets. Rule of thumb: verify everything you’re told, especially if it sounds too-good-to-be-true.
Advice for (most) small businesses:
1. Prepare for the Paycheck Protection Program
By now, most have you have read about the CARES Act and more specifically the Paycheck Protection Program (PPP). Check out this blog post from last week for a deeper dive into all you need to know (and all we know, right now).
A few key points:
- The PPP is a forgivable loan based on historic payroll, and processed via SBA Preferred Lending institutions (banks and credit unions).
- Applications could start as soon as Friday, April 3, but no guidelines have been issued yet to banks or SBA district offices. This could be a paperwork quagmire that bungles the program, or it could be as streamlined as the TARP bailout in 2008.
- The process will be messy, especially at first. There will likely be brokers and bankers that try to get you in other programs, roll your debt to other banks, etc. If I had a crystal ball, which I don’t, the banks are going to get a very firm set of structures they have to work within, and should, or we are all doomed to the annals of economic depression.
- Disbursements may take time to process, but I have a feeling that you’ll give your routing number and account number and the money will be there most haste (prediction: 48 to 72 hours from loan approval).
- Again, we don’t know what the actual application process will look like, but if I were you I’d start getting these things together: personal and business taxes for 2016, 2017, and 2018 taxes; a list of your personal accounts and debts for a personal financial income statement; make sure any tax penalties, late payments, etc. are paid; ensure you are up on your child support payments; run a payroll report for 2019 and interim for 2020; create an itemized expense report; and start thinking about how you’d explain the ways in which COVID-19 is impacting your business (important: site data). Will you need all this? Probably not, but it is best to have a well-appointed backpack, unless of course you’re supposed to run from the mama grizzly.
2. Apply for an Economic Injury Disaster Loan
Less well-known is the Economic Injury Disaster Loan (EIDL) program. We urge clients that if they qualify for this program, they should apply right away. The application website was streamlined over the weekend, and it should not take more than 15 minutes to fill out the application here.
The EIDL is a little different than PPP. For EIDL, you apply directly to the SBA without the lender as an intermediary. These loans are based on what your projected revenue loss is due to COVID-19. These loans aren’t forgivable, but they are low interest, long-term, and repayments are deferred through the end of 2020.
I encourage all small businesses to consider applying because it will likely offer quicker disbursement of capital. To further incentivize you to apply, the SBA is offering up to a $10,000 advance. If you use that $10,000 for payroll, it will not have to be repaid, even if you ultimately don’t receive the loan.
3. Defer Your SBA Loan Payments
The SBA is asking their partner lending network to defer loan payments on existing 7(a) and 504 loans for up to 6 months. If you haven’t already heard from your bank, reach out to them immediately. The deferrals are based on the lender’s discretion (meaning it does not have to be approved by the SBA, reducing red tape), but the SBA will intervene on your behalf if you have issues getting your bank to cooperate.
4. Think About What’s Next
The three programs I described above are just the first relief efforts expected out of the federal government. These are stop-gaps, designed to stop the bleeding, keep small business employees on payrolls, and sustain the country’s small businesses through June 1. Think relief not stimulus. Subsequent legislation will likely be focused on getting small businesses back to work. I encourage you to read 4 Steps to Saving the Life of Your Business to help you stop the bleeding in your own organization and think about what’s next.
Also, begin thinking about how you can pivot or expand your current business to take advantage. For example, one discussed relief effort will surround the long-needed infrastructure bill. If you’re in the construction industry, it’s pretty obvious how you can fit in. But a program like that will require administration and support from a variety of industries, so begin considering how your employees could fit into a massive effort to rebuild America’s roads, bridges, dams, utilities, etc.
Be ready to respond quickly as things change. Because they will change, and we will be here to help small businesses get back to work when they do. And always remember: there are bears in these woods.
Masterplans is a veteran-owned business that specializes in providing the highest-level business development consulting. For 17 years we have helped thousands of entrepreneurs launch new businesses and put their ideas in motion. Now, more than ever, we want to see these same businesses survive the largest economic disaster of our generation.