The coronavirus has quickly overtaken the world, causing physical, emotional and economic struggles. Although everyone is affected to some degree, small-business owners are taking a huge hit. Many of the forced closures involve their line of work, and small businesses often have the least amount of cash available to cover loss of income and added expenses.
Fortunately, the federal government, through the Small Business Administration (SBA), has stepped in. Strategies like the COVID-19 Economic Injury Disaster Loan can help business owners through the worst of the pandemic and help them come out strong on the other side.
How Do I Know If My Business Qualifies as a Small Business?
The government uses strict guidelines to determine if a business is “small.” Most funding organizations base their relief on this categorization. The Small Business Administration provides an online tool, so you can quickly check the status of your business. Since size requirements vary by industry, you need to know the NAICS number for your trade.
The Importance of Cash Flow to Small Businesses
By nature, small businesses often run a tight ship. Initial capital investments often must last for a couple of months until business picks up. Once customers appear and products start to move, it’s still like walking a tightrope. You need to buy more products to increase your business, but there’s usually a timing delay between sales and receipts.
Even if you’re a cash-out-the-door business, you still need to buy the supplies and pay workers before the first customer ever arrives. Because of this time discrepancy, small businesses typically rely on loans and credit lines to solve their cash flow problem.
Credit Opportunities for Small Businesses
If you aren’t interested in finding investors and you want to maintain sole control of your business, start-up loans may be the solution. Many companies, including banks and credit unions, offer small-business loans. The SBA also provides loan guarantees if your credit risk is too high for potential loaners. Make sure you prepare in advance for these loan opportunities. Lenders expect to see a business plan, list of projected expenses and estimated financial projections.
Credit Lines and Cards
Maybe you don’t need a lot of start-up cash, but you do need a way to buy products in advance of receiving payment. Credit lines are usually set up by banks, and some vendors offer similar types of arrangements. With a credit line, you have a preset limit of money you can borrow, and you pay it back each month as funds come in.
If your business only needs a small outlay of money each month, you may be able to get by with a business credit card. You can use it like a credit line. Buy your operating essentials, and pay the card back when receipts come in.
Disasters and Their Effect on Small Businesses
Your small business may be handling its own, thanks to smart planning on your part and careful use of start-up cash and credit lines or cards. But what happens when an unforeseen disaster, like COVID-19, strikes? Maybe you maxed out your credit, and suddenly, you were forced to close. Bills are still coming in, and you have no way to pay them.
What Is a Disaster Declaration?
A disaster declaration typically has to be a statement given out by a governor, stating that a state is experiencing an emergency or disaster that’s way beyond the state’s capacity to handle. Once a state gives out a disaster declaration, the governor can take a few different actions to help alleviate the situation.
From a small-business owner’s perspective, a disaster declaration brings federal relief. It can take the form of low-interest rate loans, advances and tax breaks. At any given time, you can visit the website of the Federal Emergency Management Agency (FEMA) to see what disasters have been declared in your area. This includes the coronavirus pandemic and any weather-related catastrophes. The Small Business Administration also has listings of declared disasters along with resources available for businesses in the covered areas.
How Is the Federal Government Helping Small Businesses During COVID-19?
Once a disaster is declared, a variety of governmental agencies step in to offer help in the form of personnel and funding. Debt relief and the COVID-19 Economic Injury Disaster Loan are just a few of the available solutions to small-business organizations.
Congress has approved the Coronavirus Aid, Relief, and Economic Security Act (CARES). The bill has several resources for small-business owners. Its Small Business Owner’s Guide explains the following available strategies for struggling businesses.
Paycheck Protection Program
If approved, businesses would receive loans to maintain payroll to employees. Up to eight weeks of payroll costs are eligible for loan forgiveness. Low-interest loans for lengthier payroll periods will have payments and interest deferred for six to 12 months.
Small Business Debt Relief Program
If your business already has loans in place, including 7(a), 504 and microloans, the SBA provides debt assistance for six months. The SBA will take responsibility for the principal, interest and fees on these loans. Anyone approved for a new loan during this time can also take advantage of this debt relief.
COVID-19 Economic Injury Disaster Loans and Grants
To provide immediate help to struggling businesses, the SBA is offering grants of up to $10,000. This money is available to organizations that apply for a COVID-19 Economic Injury Disaster Loan (EIDL). You should be able to access the funds within three days of your loan application and grant request acceptance. Small businesses don’t need to repay the grant advance. However, they must use it for business-related expenses, such as payroll, rent and increased everyday expenses.
The EIDL has a maximum borrowing amount of $2 million, and all principal and interest payments are deferred until further notice. Only small businesses are eligible, and they must have been in operation since January 31, 2020.
Counseling and Training
There are a variety of local and niche organizations to help with guidance and training during economic crises, like COVID-19.
- Small Business Development Center
- Women’s Business Center
- SCORE Mentorship
- Minority Business Development Agency’s Business Centers
How Do I Apply for the COVID-19 Economic Injury Disaster Loan and Grant?
Small businesses can apply for disaster relief solutions at the U.S. Small Business Administration’s website. Additionally, district offices located throughout the 50 states and U.S. territories can provide local help.
Private Loan Assistance for Small Businesses
You may hear the phrase “we’re all in this together” from media and organizational websites throughout the United States. Many companies whose sales are unaffected by the virus are providing grants and funding incentives to small businesses. Some are local, and some are national.
Credit agencies and banks are offering low-interest rate loans and economic guidance as well. If your company doesn’t qualify for federal funding, you can find help through other resources. Sample interest rates from a variety of lenders and small-business loan advice are available at Credit.com.
Watch Out for Scams
Disasters, like the coronavirus pandemic, tend to bring out the best in people. But you do need to be aware of scammers. Follow these tips to avoid being ripped off by swindlers.
- Visit the Federal Trade Commission to learn about recent COVID-19 scams.
- Before you share personal or business financial information over the phone or through email, confirm the identification of the other party.
- Be especially wary of people who call or reach out to you first.
The life of a small-business owner is difficult even during the best of times. When economic disasters threaten, it can seem overwhelming. Thanks to governmental aid and the support of credit agencies and lenders, money and guidance are available to help keep your small business alive and thriving.