SMBs Survival Guide

 With the ongoing Corona Virus running rampant, small business owners are being hit particularly hard. Small retail outlets and restaurants are often only surviving from month to month, without any cash reserves. If a lease agreement is not forgiven, then it could be game over for many of them. 

To avoid being hit, a number of relief programs are available from Government departments. Banks and large financial institutions are being incentivized at the Federal level to provide relief for local businesses, including a reduction of ATM and credit card fees.

There are also a number of other resources you can make use of that are still doing business despite the crisis. As grim as it may be, there are many avenues available to you, once you stay calm.

The SBA Paycheck Protection Program (‘PPP’) is a new protocol created under the 2020 CARES Act. The CARES Act was introduced to combat the financial implications of the Corona Virus for all citizens. The PPP aims to provide relief to small business owners who cannot currently pay wages, rehire employees, and cover overhead. It is the primary relief package under the CARES Act.

Unfortunately, this program has been exhausted. On the 16th of April, it announced that it had run out of funds. However, it is expected that more funds will be provided soon. The PayCheck Protection program is facilitated by the Small Business Administration (‘SBA’), with backing from the US Treasury Department.

It provides up to 8 weeks of relief with no fees or interest. In addition, the funds can be used to pay for rent, utilities, and mortgages. Wages and salaries must stay the same, and fired employees must be rehired. More details on the now-defunct program can be found here. Many are saying that the 8 weeks of Paycheck ‘forgiveness’ will not be enough to prevent the fallout, and will have to shut their doors anyway.

The SBA Economic Injury Disaster Loan (‘EIDL’) is perfectly suited to the current economic crisis. It can provide up to $2 Million to businesses that suffered economic injury as a result of a disaster. They must be in an area that has been officially declared to have undergone a disaster. Aside from the PPP, this is the second strongest arm of relief underneath the wider CARES Act.

However, like most of the SBA disaster programs, it has run out of funding. No new applications are being accepted and it is currently only providing $10,000 of relief to affected enterprises. This is available to every business in the USA right now. This loan does not have to be repaid and applicants will receive remuneration as the funds become available on a first-come, first-serve basis.

What is available right now is known as the Economic Injury Disaster Loan Advance (EIDL Advance). Applicants can get an advance of $10,000. The funding underneath this particular program is set to increase to $15,000 in the near future. Following a successful application, you can receive the funds within days. Unfortunately, like the PPP, this program is currently awaiting fresh funds.

The SBA Express Bridge Loan allows businesses that currently have an Express Loan to gain access to $25,000 quickly. This loan is specifically designed to ‘bridge’ the gap while applying for other kinds of loan, such as the EIDL Advance or the PPP.

This loan is a little less appealing in the sense that it must be paid back when relief is granted in contrast to some of the other options, such as the EIDL or PPP. However, in many instances, you will not have to repay the loan. For example, you could apply for the PPP so you won’t have to cover payroll/wages for an 8 week period.

While there is a backlog right now, the Express Bridge Loan could easily tie you over until these funds become available. The turnaround for this loan is quite swift. It is a pilot program allowing SBA accredited lenders to lend up to $25,000 immediately to certain applicants.

Businesses that are currently taking advantage of the SBA 504, SBA Microloan, or SBA (7)(a) can have all fees, including the principal, waived for 6 months. In effect, this means that all of your debt payments can be effectively wiped out if you apply under this program.

These loans are often not small. For example, the SBA 504 commercial real estate loan can be up to $5 Million, and the monthly interest on this can be large in dollar amounts. The SBA Debt Relief program is a new offering designed specifically to assist businesses suffering from the COVID-19 fallout.

Effectively, most loans that you currently have should be forgiven payments during the current period. Both commercial and state loans are forgiving payments on existing loans, for at least 30 days. So you should have a lot of flexibility. Reach out to all lenders to see if you can get an extension of some kind, even outside of the SBA program.

Online lenders are almost certainly the best bet in the midst of the COVID-19 crisis. This is because online lenders like Kabbage, OnDeck, Lending Club, SmartBiz, and LoanBuilder are famous for 3 things:

1. Low Eligibility Requirements.
2. Lightning Fast Funding.
3. Opaque Terms and Conditions.

Right now, the most important thing for a small business owner is to get funds without delay. A typical bank loan can take months to complete with many documentation requirements. And it’s not possible to meet people in person without danger of contracting the virus.

But the online lending process can be done without meeting anybody in person. With lenders like Kabbage, you don’t even need to take a call. The money can be in the account as quickly as the next business day, after completing a 10-minute application. 

The requirements will usually be $50,000 in annual revenue, a minimum credit score of 550, and 3 months of bank statements for verification. This is usually all that you need, though some online lenders will have different requirements. With the speed of application and the speed of delivery of funding, online lenders are ideally suited for the COVID-19 crisis.

Microloans are loans available from the SBA that are under $50,000. Microloans are available mainly to small businesses in underprivileged areas. They are also typically granted to minority businesses run by women, veterans, Hispanics, African Americans, etc. These businesses must be for-profit and must be located in the USA.

The criteria for qualifying for these microloans are quite low. A credit check is not required unless the amount is over $20,000. The borrower cannot already owe more than $50,000 at the time of application. The maximum term of the SBA microloan is 6 years, which is a very long term. No physical collateral is required, though a note of collateral must be signed.

Microloans are processed much more quickly than typical SBA (7)(a) loans. However, it is still not as quick as the emergency funds that are available. There are better options available. A microloan is not a line of credit but a term loan. Eligible uses include inventory, wages, working capital, equipment, and machinery. More details can be found here. 

Business Interruption Insurance is a typical insurance policy that most small business owners should have taken out. In fact, it is designed specifically to prevent these kinds of challenges. Business Interruption Insurance is supposed to cover any kind of business interruption that affects wages, fixed costs, loan payments, etc. Many insurance companies are currently trying to default on their loan obligations, claiming that COVID-19 is a natural disaster. 

However, policymakers are in the process of forcing the insurance companies to make good on their obligations. In California, the commissioner has issued a notice forcing companies to cover COVID-19 claims. This kind of insurance is most typically for larger companies. Only 33% of small businesses get it, according to the American Action Forum. The issue remains quite controversial at present.

The President, and many other state senators, have made statements to the effect that insurance companies have to pay, even where there are specific exemption clauses in place. Multiple bills have been introduced by states including Massachusetts, Ohio, New Jersey, New York, California, Louisiana, Pennsylvania, and South Carolina. Consider the following clause form a New York draft bill:

Any clause or provision of a policy of insurance insuring against loss or damage to property, which includes, but is not limited to, the loss of use and occupancy and business interruption, which allows the insurer to deny coverage based on a virus, bacterium, or other microorganisms that causes disease, illness, or physical distress or that is capable of causing disease illness, or physical distress shall be null and void.

In other words, if you have Business Interruption Insurance, you could easily be reimbursed even if the contract has a specific viral clause in place.

If you have been hit hard with the effects of COVID-19, its vital to use all of the avenues at your disposal. These avenues include:

• Mortgage Relief – The CARES Act allows mortgage relief up to 180 days for those affected. This is the case for Federally backed mortgages. If you cannot make your mortgage payments due to COVID-19, then you definitely need to contact your bank. All you have to do is submit a request to the servicer – no further documentation is required.
• Lease Relief – know your rights. Landlords cannot evict tenants during the present time (provided they have been granted forbearance) without giving 120 days of notice. The CARES Act forbids evictions in Federally backed housing (note that you must still pay your rent – you just have a longer time to do it and won’t have any penalties for late payment). Many states and local authorities have issues laws that prevent landlords from evicting tenants.
• Unemployment Benefits – If the worst comes to worst and you do lose your job, then at least you will be fully entitled to jobseekers allowance. A $2 Trillion Bill enacted in late March allows those who are now unemployed due to Corona Virus to gain the necessary funds to meet basic needs. The Pandemic Unemployment Assistance (‘PUA’) covers. Independent contractors and sick people caring for a loved one. The PAU also offers $600 on top of existing benefits for eligible applicants.
• Friends and Family – There is increased solidarity among small communities and a willingness to help out. With a global pandemic, people are understanding and willing to lower costs and lend a hand. While not a direct form of finance, this is something that can be leveraged.

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