Small businesses must act now to develop a plan to escape the grip of the deadly COVID-19 pandemic that is decimating lives and economies throughout the world.
The stakes are high: your survival. Governors across the country have ordered schools and nonessential businesses to close their doors and told people to shelter in place. Companies are rapidly jettisoning workers daily, leading to 3.28 million people applying for unemployment benefits during the third week of March, 2020.
To save the economy, Congress approved a $2-trillion relief package, which includes $370 billion in government-guaranteed bank loans that may be forgivable.
As the new normal of social distancing sets in, small businesses, the 30-million strong that employ 47% of the U.S. workforce, must find a way out.
Capital is the respirator to revive small businesses as they prepare for life after COVID-19.
Former U.S. Small Business Administration (SBA) Administrator Karen G. Mills recently said the coronavirus would have a worse economic impact than the 2008 financial crisis.
“Many small businesses will not survive more than a month,” she said.
Here are some recommendations to find capital.
Every small business that has been impacted by COVID-19 should apply for the SBA Economic Injury Disaster Assistance (EIDA) now. This program can provide up to $2 million to a business as a direct loan from the government to pay vendors, employees and other bills. Expect it to take at least a month to get approved and funded, due to the volume of applications.
Visit SBA.gov to learn about all your options, including the 7(a), 504 program and microloans.
HEDCO, a community development financial institution (CDFI) based in Hartford, is a mission-driven nonprofit committed to making access to affordable capital a reality for underserved businesses. Expect small community lenders to be overwhelmed with loan requests, so get your financial documents ready: three years of tax returns, current P & L and balance sheet, accounts receivable and payable aging report, debt schedule and a projected one-year cash flow.
Consider the Community Economic Development Fund (CEDF) and Community Investment Corp. (CIC), two community-based lenders in Connecticut. The state of Connecticut recently announced it will offer low-interest loans up to $75,000 to small businesses.
Visit the state of Connecticut Department of Economic & Community Development website (https://portal.ct.gov/DECD ) for the details.
Look everywhere for capital. GoFundMe is a donation-based crowdfunding platform where businesses can raise capital, usually small amounts under $10,000. Reward-based crowdfunding on platforms such as Kickstarter and Indiegogo are other options. Make sure you plan out the details and allocate your time wisely.
Fundera is a financial advisory resource for small businesses, and includes a network of financial providers. OnDeck Capital, Kabbage, BlueVine and Lending Club are online lenders. Make sure you read the fine print and can afford the financing terms because the effective annual percentage rates can exceed 30% for some short-term loan products.
Re-evaluate your own credit policies, including the types of businesses, amounts and terms. Cash rules.
“Money in the door allows you to put money out the door ,” says Mills. To the large corporations reading this, pay small businesses immediately, versus your standard practices of 30 days and longer.
Check your lease to see if the COVID pandemic qualifies as a force majeure event, which may temporarily excuse your performance under the terms of the contractual agreement.
Be proactive. Seek advice from your attorney and accountant. Also, talk to your banker about payment deferral programs and other options.
COVID-19 will not defeat the American spirit. Use this trying time to get your financial house in order.