As our economy starts to rise from the ashes, we are beginning to see the damage done by COVID-19. Many businesses, large and small, are gone. Pier One Imports is closing all of its stores, and my favorite local pizzeria succumbed to being closed for over two months without any way to generate revenue; the lockdown was simply too much for their business.
Most small and midsize companies that have survived 2020, to date, will probably need help in reopening their doors. They must buy inventory, bring back employees, and get everything ready while praying their customers return. One of the many items on their check lists is “financing.” How will business owners pay the expenses they incurred during the lockdown, pay to reopen their companies, and have enough cash flow until revenue gets back to normal levels? Let’s look at a few options:
1. Main Street Lending Program (MSLP) – At the beginning of April, the Federal Reserve established the Main Street Lending Program (MLSP). The purpose of the program is to help small and midsize companies affected by COVID-19 that needed financing to cover business expenses. Two months later, the program is still not operational, and there is currently an expiration date of Sept. 30, 2020.
Some good news: There are currently three options to the loan program which will create new loans as well as increase existing loans and lines of credit with financing limits up to $200 million. The loans will be processed through approved lenders. Unlike the PPP and EIDL programs, which are backed by the government and were processed with little paperwork, the MSLP lenders will follow normal procedures to determine borrower eligibility.
One example of an approved lender in the Main Street Lending Program is The Pitney Bowes Bank. The Pitney Bowes Bank will be participating in the Main Street New Loan facility, providing working capital loans to clients with very attractive rates and terms.
2. Federal Government Loan Programs
- Paycheck Protection Program (PPP) – Most business owners are familiar with government’s PPP program. There have been several missteps in getting money into the hands of businesses that needed help the most, but Congress is now trying to fix some of the bigger issues. Recently, the House of Representatives overwhelmingly passed a bill that includes several key corrections to the PPP program, namely: the loan amount spent on payroll would go from 75% to 60%. This frees up money to go to other expenses (from 25% to 40%) such as mortgage/rent payments, utilities, and interest on loans. The bill also extends, from 8 weeks to 24 weeks, the time a business can use the funds and seek forgiveness on the loan. There are several other key changes to the program. If you have a PPP loan, it’s imperative that you keep abreast of the House bill to see what the final components are to the PPP program and what they mean to your loan. Make sure to read the fine print!
- Economic Injury Disaster Loans (EIDL) – This government program is normally used to help small business owners after a natural disaster (e.g. Hurricanes Sandy and Katrina). In March, the government opened the EIDL program to business owners who were adversely affected by COVID-19. Like the PPP program, the SBA was bombarded with applications when business owners learned that they could receive a $10,000 advance within a few days of sending in an application. Also like the PPP program, the EIDL fine print has changed several times since March (and probably will continue to change several more times). As of today, here are the terms for the EIDL program: 30-year term loans up to $2 million. The interest rate is 3.75% (2.75% for non-profits). No payment is due for 12 months. Loans under $200k don’t require a personal guarantee, and loans under $25k don’t require any collateral.
Before accepting a government loan, you must read the fine print of the promissory note and security agreement (The EIDL agreement is approximately 18-20 pages). If necessary, have an attorney review it with you to confirm how the money can be used in your business. You will also need to keep meticulous records and itemized receipts.
3. State/Local Programs – Even more than the federal government, your state and local government have a vested interest in helping your company successfully navigate the pandemic. Most states have programs, either grants or loans, to help small business owners keep their doors open, pay their employees, and cover expenses. If you haven’t done so already, reach out to your local SBA office, Small Business Development Center, or SCORE chapter to help you learn more about local and state opportunities for small business owners. They are all great resources.
4. Your Bank/Credit Union – Hopefully, you have stayed in touch with your bank and/or credit union during the lockdown period. Most financia institutions provided deferments to customers on everything from mortgage payments to credit cards through the end of June. If you think you will need more time to get your business back on its feet, have another conversation with your creditors about extending the deferment for 60-90 more days. Maybe you can make partial payments (which is a very smart thing to do to avoid big balloon payments) as a good faith gesture. The one thing you don’t want to do is NOT talk to a creditor. They have a vested interest in your success and want to help you; they are not the enemy.
The best advice I can give you is to explore all your financial options and maintain a consistent dialogue with your existing creditors. Be proactive in reopening your business, especially with financial matters, and you exponentially increase your chances for success.