Stimulus Hacks for Small Businesses to Weather Coronavirus
WHY YOU SHOULD CARE
Because small businesses are struggling. Here are a few lifelines available.
Even though the coronavirus crisis has dropped his sales by 80 percent, one Seattle bakery owner fills his storefront every day with the same quantity of baked goods he always has. It doesn’t matter that he’s already had to close two of his bakeries, and this is his last location left. “He hasn’t come to grips with the change, and he thinks he needs to have all the shelves stocked,” says Clint Coons, founder of Las Vegas-based Anderson Business Advisors.
Coons was trying to help the bakery owner benefit from the CARES Act, the $2 trillion stimulus package passed by Congress. But the message wasn’t sinking in: “It didn’t register that this could solve the problems he is facing right now, that this could help him stay open. Some business owners just stare at you, as if you are speaking Greek to them.”
The widespread closure of American public life is frightening, especially for the mom and pops trying to stay afloat in trying times. According to a survey with online business banking provider Azlo, 77 percent of small business owners have already been negatively impacted by the coronavirus pandemic and another 16 percent anticipate they will be impacted. More than half say they will only be able to operate another three months under the current conditions, according to a Goldman Sachs survey of more than 1,500 small businesses. And they could be more at risk of being taken advantage of if not careful, adds Jamey Boone, vice president of fraud risk management at the digital payments service Zelle: “They’re under a lot of financial stress right now and that elicits an emotional response, which makes it more likely for a small business owner to fall prey to several of the scams that have been around for years.”
Still, small business owners can’t let paralysis set in because of fear. There is aid available and help for those who knock on the door. Here are just a few smart ways businesses can pivot to weather the storm.
Apply for a Free $10,000 Grant Right Now
As part of the CARES Act, the Small Business Administration (SBA) is offering an emergency advance of up to $10,000 to small businesses and private nonprofits harmed by COVID-19. The process is simple: Apply for an Economic Injury Disaster Loan (EIDL) here and on the last page check the box asking for “an advance of up to $10,000” (see image below). The advance is really a grant because it “does not need to be repaid under any circumstance,” according to the website of U.S. Sen. Brian Schatz of Hawaii. And the SBA says it will pay the funds directly to business bank accounts within 72 hours, regardless of whether the EIDL is also approved. “There is only a limited number of funds,” Coons says, and businesses “need to be jumping on it.”
Think you don’t qualify? The grant isn’t just for small businesses that employ staff: People who file as a sole proprietorship may also be eligible. Resell items on Amazon? Own a rental property? Work in the gig economy? If your business was adversely affected, or you have concerns it could be affected in the near future, you may receive relief.
This is the real lifesaver for owners trying to keep the lights on and keep their workers employed.
You May Be Able to Avoid Layoffs After All
Business owners who apply for the EIDL may be able to borrow up to $2 million, at an interest rate of 3.75 percent (it’s 2.75 percent for nonprofits). And if the loan is under $200,000, which it will be for most smaller shops given their needs, then owners don’t need to provide a personal guarantee or collateral. That means your house isn’t on the line if things turn sour.
While the EIDL has been around for a while, Congress has allocated $350 billion to a new loan, the Paycheck Protection Program (PPP). This is the real lifesaver for owners trying to keep the lights on and keep their workers employed. Businesses are eligible for up to two and a half times their gross average payroll for about February to June of last year (the months used may be flexible if yours is a newer business, but they are supposed to mimic the same salaries you would have paid for employees during this spring season). So, a company with an average monthly payroll of $1 million would be eligible for $2.5 million (the program caps at $10 million).
The intent is to keep people employed. And the carrot being waved to make sure that happens? The entire loan will be forgiven if you can prove the funds were used to pay salaries, cover rent or pay critical expenses to keep the business afloat. That should be possible for many employers, although some might find it challenging to meet the terms of the agreement — certain industries may struggle to fill the same number of jobs they had before the virus, given that many are afraid to work for fear of getting sick. For amounts not used directly for those aforementioned needs, the loan amount stays reasonable at 4 percent interest over 10 years, a better rate than many business loans.
Tap That 401(k) … But Wisely
Anybody with an IRA or 401(k) can take out up to $100,000 and not pay penalties, as long as they pay it back within three years. We generally don’t recommend doing so: Unless you had a heavily bond-focused portfolio, taking money out of your retirement account now is securing your losses from the recent stock market crash –– losses that could be gains in just a few years if you hold steady.
That being said, if withdrawing from your 401(k) now allows you to jump on a business opportunity with long-term earning potential, it may be a sneakily savvy move. Real estate investors, for example, may want to take advantage of the coronavirus-addled market and pull out cash for a down payment. Securing a discounted property at record-low mortgage rates could well be worth tens of thousands of dollars … potentially far more than leaving that 401(k) money stashed. New equipment, products, software or technology could also be worth the risk.
Reflect, and Reimagine
It will probably pay to be patient. After the SARS outbreak in 2003, the Toronto hotel industry suffered greatly from price discounting … and now hospitality providers are refusing to provide deep cuts again. Back then, many businesses began new marketing campaigns before the crisis had completely passed. “Don’t start too early,” warns Mike Williams, general manager of Economic Development, Culture and Tourism for the city of Toronto. “Many of these pandemics do have a second wave when people start getting out there and there’s another surge.”
Take a step back. Lots of cities and local municipalities are working to reshape business models, to make sure something like this never shutters the economy to this level again. “We’re putting a lot of emphasis on creating a digital main street, getting all of the businesses up on the web because this will change consumer habits for good,” Williams says. Whether it be through investing in new training, educational courses or revenue streams, the best bet for your economic relief funds may be to look to the future … as pressing as the present may seem right now.