That rainy day is here. Now what?
Tuesday, 14 April 2020
For many businesses across the country—and around the world—the coronavirus pandemic isn't just a rainy day. It's a monsoon.
With little time to prepare, many businesses were forced to close their doors by local and state governments, while others had to swiftly move all employees into work-from-home mode. It's like nothing the country has seen in decades—if ever.
So, now what? Some restaurants and retail outlets are attempting to stay afloat by transitioning to curbside service. Other businesses have cobbled together delivery services in order to keep cash flowing. But besides creative efforts to keep product moving and people working, what can small business owners do to weather this unprecedented social and economic storm?
Assess your current financial situation
Evaluate your expenses as well as cash on hand and available credit. Based on this information, along with projections for your business in the coming months, you should have a clearer picture of your business's financial health.
Dip into cash reserves
Small businesses are commonly advised to have three to six months of operating expenses stashed away for emergencies—and this is certainly an emergency. Carefully use your reserves while also working to reduce expenses so your savings will last longer.
Use credit wisely
Business credit cards are designed for daily business expenses, but are not ideal for covering major operating expenses. If you have a business loan or line of credit, however, now may be a good time to use it. If you don't, but you still have some revenue coming in and your credit is good, you could qualify for one. And because rates are so low, it can make even more sense to try to secure a loan or line right now. Speak to your bank representative about a loan or line of credit before using your credit card to cover your business expenses.
Access resources available to you
You may wish to consider a Small Business Administration (SBA) loan or funding provided in the recently enacted Coronavirus Aid, Relief and Economic Security Act (CARES).
Your banker can advise if you qualify for a SBA loan, which offers less restrictive collateral requirements, longer terms and lower payments. The recently passed stimulus law, the CARES Act, includes significant additional SBA funding to assist more small businesses in need.
If you already have an SBA loan, the new law also makes SBA Express Bridge Loans of up to $25,000 available with minimal paperwork and expedited turnaround.
In addition, the new law also authorizes Economic Injury Disaster Loans of up to $2 million for businesses and non-profits severely affected by the coronavirus pandemic. These low-interest loans are only available to businesses and private non-profits located in declared disaster counties or contiguous counties.
The business funding portion of the CARES Act, referred to as the Paycheck Protection Program, also includes up to $10 million in low-interest funding for qualifying businesses, which can be forgiven—essentially turned into a grant—if employers keep workers on their payrolls and do not decrease their wages.
Communicate with creditors and landlords. If you uncover potential shortfalls, now is the time to reach out to your creditors to see if you can adjust or even defer monthly payments. Also, contact your landlord if you anticipate late rent payments. By proactively communicating such issues, you may be able to avoid the potential fallout from missed payments or loan defaults.
Review your personal situation. Because your personal finances are so closely tied to your business, it's important to review and assess your personal situation as well. Go through the same process, looking for ways to cut expenses, evaluating your savings and identifying potential sources of credit, including credit cards and home equity loans or lines of credit.
Check in with your employees. Uncertain times for your business also mean uncertainty for your employees. Communicate with your team frequently to let them know your short- and long-term plans to accommodate the “new normal" in today's economy. If possible, let them know what they can expect in terms of hours, remote working opportunities and compensation changes as applicable.
What if your business isn't affected?
There are some sectors that have not been immediately affected by the pandemic. Chances are, however, most—if not all—businesses will be impacted by this crisis at some point. With that in mind, it makes sense to take steps to prepare for potential economic changes in the future.
Increase your savings. Now more than ever, you can see the value of having cash reserves for your business. If possible, saving even a little extra would certainly be wise.
Apply for a loan or line of credit. Having access to working capital in unexpected downtimes can be a lifesaver for a business. Now is an ideal time to apply for a line of credit for on-demand cash if you need it in the future.
Prepare for future supply-chain disruptions. Considering the scope of the impact on businesses, there is a good possibility you might experience supply chain disruptions or other challenges in the coming months. Stocking up now could help you avoid problems down the road.
Finally, know that this challenging situation will impact every business in every part of the country, regardless of size or financial health. By being proactive, you can get ahead of potential pitfalls, anticipate challenges and ensure you are prepared to rise to the occasion.
The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.
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