Small business financing options for entrepreneurs and business owners

  • There is a significant need for financing solutions for small businesses in the wake of the economic devastation caused by the COVID pandemic.

  • There are a variety of Government and private sector financing options for businesses to consider – fully assess all of them and determine what is best for your business.

  • Assess which program is right for you and consult our Financial Services page to discover even more options.
  • Mon Jul 13 17:13:00 EDT 2020

    What small business financing programs exist for my business?

    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. A number of major retailers closed all of their stores in 2020, and my favorite local pizzeria succumbed to being closed for months without any way to generate revenue; the lockdown and partial re-openings were too much for their businesses.

    Most small and midsize companies that survived 2020 will probably need help in 2021. One of the many items on their check lists is “financing.” How will business owners cover expenses from 2020 without the necessary revenue? Do they have enough cash flow in 2021 to keep their doors open until revenue gets back to normal levels? Let’s look at a few options:

    1.    Two Key Federal Government Loan programs

    • Paycheck Protection Program (PPP) – The first round of PPP loans was an unmitigated disaster. Too much money went into too few businesses, and it all went too quickly. Thankfully, in the second wave of the first PPP loan program, more businesses received loans that really needed them the most. In addition, Congress fixed some of their initial bugs by forgiving many of the loans, extending the loan forgiveness period, and, in late December, they told business owners that the expenses covered (e.g., payroll, mortgage & rent, utilities) would all be tax deductible. It meant that millions of small business owners wouldn’t be faced with a sizeable tax payment in April 2021.

      In late December, Congress passed a second PPP loan program which includes $284 billion to lend to business owners. The new PPP loans can be used for payroll costs, mortgage interest, rent, utilities, any costs to protect workers from COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations. The maximum loan amount went from $10 million in the first round to $2 million in the current round of PPP loans.

      In the second round, borrowers are eligible if they:

      • Previously received a PPP Loan and have used the full amount only for authorized uses.
      • Have no more than 300 employees.
      • Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
    • 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.

      Here are the terms for the 2021 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.

        EIDL funds can be used for:

      • Working Capital
      • Normal operating expenses
      • EIDL funds cannot pay-off old debts, refinance another debt, or buy capital assets, new construction, vehicles, etc.
      • The program runs through December 31, 2021.

    For both PPP and EIDL programs, it is strongly recommended to keep your funds in a separate account. Do not comingle EIDL or PPP money with other. It will be much easier to show that the money was spent on authorized uses only.

    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.

    2.    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.

    3.    Your bank/credit union

    – Hopefully, you have stayed in touch with your bank and/or credit union during the lockdown period. Most financial institutions provided deferments to customers in 2020 on everything from mortgage payments to credit cards. If you need assistance in 2021 to get your business back on its feet, have another conversation with your creditors about extending the deferment or creating a new deferment period for 60-90 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 pivoting or reopening your business this year, especially with financial matters, and you exponentially increase your chances for success.

    -Brian Moran, Founder/CEO, Small Business Edge, Pitney Bowes