Cash Access Strategies for Ohio’s Small Businesses
March 27, 2020
While customers have largely stopped visiting the brick-and-mortar stores of many small businesses, the bills from vendors, landlords, utility companies, banks, and payroll are still finding their way in. So for those who have invested heavily in their inventory or expansion, having cash on hand to pay these bills without their reliable customers and cash flow is a daunting task.
Fortunately, small business owners can survive—and potentially thrive—during the Great Pause by utilizing the same skills that have made them successful already: creativity and diligence.
Anyone interested in creating a funding strategy to infuse cash into their businesses should consult with their legal and financial advisors to create a plan to do it. Once in place, there are three key resources that can help those small businesses offset depressed sales and potentially restructure the business to prepare for expansion after the COVID-19 pandemic comes to an end.
1. Existing Government Programs (SBA Economic Injury Disaster Relief)
The Small Business Administration (“SBA”) is currently offering long-term, low-interest loans to businesses affected by COVID-19 in every state.
- How much is available for eligible businesses? Up to $2 million.
- What are the terms? Up to 30 years and 3.75% interest.
- What can I use the money for? Fixed debts, payroll, accounts payable, and other bills that can’t be paid due to the COVID-19 outbreak.
- What if I’ve already got outstanding loans? This could be an opportunity to refinance outstanding loans that have higher interest rates.
- First, I should consult my lawyer and financial advisor. Then what? You can apply for the program directly with the SBA either by visiting the website or calling the Customer Service Center at (800) 659-2955. In either case, you’ll need to supply financial documents that could include tax returns, personal financials and debt schedules.
2. Paycheck Protection Program or “PPP”
Both state and federal governments have acted quickly to enact programs to keep cash flowing in the economy while most people in the country stay at home. Notably, the PPP was passed in the Senate on March 25 as part of the “Coronavirus Aid, Relief, and Economic Security Act” or “CARES Act.” The PPP can help businesses cover payroll and other expenses from March 1st to June 30th.
- Would I be eligible? The version passed by the Senate would make $349 billion available to businesses in operation on February 15th and having 500 or fewer employees.
- How much could I borrow? A small business owner would be able to borrow the lesser of $10,000,000 or 2.5X the applicant’s average monthly obligation for payroll costs.
- How do I obtain the loan? The loans will be underwritten by banks like other SBA loans and are backed by the federal government, which makes them very low risk for commercial banks. If you are planning on applying, you should start the conversation with your banker as soon as possible in order to expedite the process.
- What could I spend the money on? The funds could be used for payroll support, health insurance premiums, interest on mortgages and debts existing prior to February 15th, rent, utilities, and possibly the refinance of certain other SBA loans entered into after January 31st.
- Do I have to pay it all back? Not necessarily. As long as the company maintains its level of employment and wages from March 1st until June 30th, the portion used to cover payroll obligations would be forgiven. Even if you do not maintain the same level of employment and wages, forgiveness is not “all or nothing.” The forgiveness amount would be reduced by the amount of any reduction in workforce or wages.
- What happens if the entire amount I borrow is not forgiven? The amount becomes a standard loan. The exact terms will be established by the SBA. However, the maximum maturity date is 10 years and the interest rate will not exceed 4%.
- First, I should consult my lawyer and financial advisor. Then what? Stay tuned for a final version of the program. Once signed into law, we will provide further updates on how to apply for the available funds.
3. Private Relief Funds
There are several private funds, including some based on industry and others on geography, that are being established to support small businesses in various industries. For example:
- The James Beard Foundation is establishing a fund to support the food and beverage industry. This money will be available to restaurant owners to pay their outstanding expenses during the economic slowdown due to the COVID-19 outbreak. Applications are not currently available, but the organization is accepting notices of interest on its website to be notified when funds are available.
- Facebook is offering $100 million in cash grants and ad credits to small businesses. Much like the James Beard Foundation, applications are not available but you can sign up to receive more information when it becomes available.
Opportunities like private grants are creative ways for a small business owner to gain access to the cash they need to continue operating, especially as part of a larger cash strategy.
The Next Steps for Small Business Owners
While these resources won’t necessarily be a cure-all for small businesses looking to survive the COVID-19 pandemic, they’ll help. And if you are a small business owner looking to make the most of the current situation, a smart approach is to work with financial and legal advisors who can (1) guide you in applying for and complying with requirements for currently existing government programs, (2) monitor new legislation aimed at small business owners and help you act fast to take advantage the programs, and (3) advise you in applying for private funds that are rapidly becoming available.
For small business owners already struggling to finance their operations, we’ve also written about important short-term financial management strategies related to cash preservation and potential restructuring.