The coronavirus outbreak has been a disaster for our nation’s small businesses. Internal research conducted by Lendio reveals that roughly half of small business owners are suffering from the effects.
This percentage increases substantially for businesses in urban areas, which is concerning because of the high concentration of small businesses in affected areas. Likewise, minority business owners have been disproportionately affected. They are twice as likely to be dealing with issues related to coronavirus, which is at least partially explained by the higher levels of diversity in urban areas. Regardless, it’s clear that millions of entrepreneurs are in serious danger.
The Lendio study found that social distancing is playing a significant role in small business struggles, as fewer consumers are visiting business locations. Financial strain related to the crisis is also a factor, as customers have less money on hand and are therefore more reluctant to make purchases.
This is a worst-case scenario for many businesses. And even those that have tried to prepare for emergencies are in danger.
“A lot of you are hurting and simply can’t find support right now,” says personal finance expert Brian Thompson. “You’ve tried your best to prepare for slowdowns […] but you couldn’t have imagined going from 100 to 0 in a matter of hours, leaving you with a lot of bills to pay, including rent and payroll. The median business holds cash reserves to cover 27 days of expenses, according to Chase. But even if you’re well-prepared, with a 3- to 6-month buffer for your business, you still need to plan for what happens if that runs out. No one knows how long this will last. What you need right now is cash.”
A Helping Hand from Washington
The CARES Act is set to offer some serious relief to our nation’s small businesses. The record-breaking stimulus package includes federal disaster loans and many other financial perks intended to provide a lifeline for those in need.
- $350 billion forgivable loan program
- Access to Federal Reserve credit facilities
- Expansion of unemployment benefits
- Expansion of uninsurance benefits
- Payroll tax credit
- Delayed employer payroll taxes for Social Security
- Cash payments for most Americans
“The programs and initiatives in the Coronavirus Aid, Relief, and Economic Security
(CARES) Act that was just passed by Congress are intended to assist business
owners with whatever needs they have right now,” explains a small business guide prepared by the US Senate Committee on Small Business & Entrepreneurship. “When implemented, there will be many new resources available for small businesses, as well as certain nonprofits and other employers.”
How to Take Advantage of the Stimulus Plan
To get fast cash that can help you cover immediate expenses, you should apply for an Economic Injury Disaster Loan (EIDL). These low-interest loans are facilitated by the Small Business Administration (SBA) and can connect you with up to $2 million to help your business bounce back. You can use the money to cover the kinds of expenses you would have met if it weren’t for this pandemic. Examples include:
In order to be eligible for one of these COVID-19 loans, you need to own a small business with no more than 500 employees. If you aren’t sure if your business qualifies, use the SBA’s convenient sizing tool.
After you’ve applied for one of these disaster loans, there’s an extra bonus you should definitely take advantage of. The government is currently providing Emergency Economic Injury Grants that provide you with as much as $10,000. And the money never needs to be repaid.
These special grants are earmarked for qualifying small businesses and nonprofit organizations. So if your business has been harmed by the coronavirus outbreak, you should request one of the grants no more than 3 days after you’ve applied for the Economic Injury Disaster Loan.
The grant money is intended to help you take care of pressing financial burdens. If your supply chain has been turned upside down, you could use the $10,000 to help keep production rolling. If you’re having trouble covering payroll and sick leave, that’s another prime use for the money. Basically, anything involving operating costs and business obligations could be fair game for this obligation-free money.
In situations where making payroll will require more resources than provided by an Emergency Economic Injury Grant, consider applying for a Paycheck Protection Program (PPP) loan. You can qualify for up to $10 million for paid sick leave, paid medical leave, insurance premiums, mortgage or rent, and utility payments.
Planning Your Long-Term Recovery
It’s hard to look at the big picture when you have urgent needs like payroll and rent screaming in your face. But once you’ve gotten some short-term relief from the relevant SBA loans and grants, it will be time to think about how your business is going to survive the next month, 6 months, and year.
Part of this process will be reviewing the benefits of the CARES Act to ensure you’ve leveraged every possible benefit to your business. Then you can begin looking for other sources of financial relief. Talk to your landlords, contractors, and employees. By working together to find collaborative solutions, you’ll lay a new foundation for your business that might even be stronger than what you had before this whole coronavirus mess began.