The COVID-19 crisis has forced the closure of about 120,000 small businesses in Michigan alone. As businesses of all sizes remain closed in hopes of alleviating this crisis, many are exploring financing offers to help them stay afloat during this time of uncertainty.
Every small business needs to be proactive now to seize opportunities later. It starts with conserving cash and protecting reserves. This is the time to postpone non-mission expenses, to collect debts – even if it is only a partial payment – to manage stocks as closely as possible by avoiding the temptation to haggle and, finally, organize your debts by priority.
A common approach to prioritizing debts is to classify them into A, B, and C. Debt in category A includes items with significant consequences, such as payroll, taxes, rent, and insurance, where non-payment could cost you dearly. Class B debt includes commodities, for which you need to discuss your ability to pay with your suppliers. Category C includes everything else, including unsecured debt like credit cards.
In any situation, talk to lenders about forbearance packages that can allow small business owners to defer payments without penalty, which equates to free financing.
Now is also the time to update the company’s accounting information to make the best possible decisions for each separate organization and potentially take advantage of the new funding opportunities that have landed in the email boxes of business owners across the country. in recent weeks.
The Small Business Administration approved Michigan’s request for an economic injury disaster declaration on March 19, opening up the possibility for businesses to access disaster assistance from the SBA.
It is important to note that SBA Disaster Assistance is a loan. This loan must be repaid to the SBA. Small business owners must apply, have an acceptable credit history, and be able to repay the loan. Business owners must also demonstrate lost working capital due to the coronavirus emergency.
Unlike other SBA backed loans guaranteed by a commercial lender, business owners apply for the SBA disaster loan directly from the SBA at sba.gov/catastrophe. Be warned that, as with past SBA disaster loans, the process is not quick. This involves significant documentation, and to receive this loan, the business must qualify. Those who already have commercial loans should consult their lenders first, as they may be able to offer faster turnaround time and better rates.
The State of Michigan has also announced that grants and loans will be available through the Michigan Small Business Assistance Program. (michiganbusiness.org/about-medc/covid19/) To be eligible, a small business must belong to a sector described in Executive Decree 2020-9 or demonstrate that it has been otherwise affected by the COVID-19 outbreak. Funds for the program were to be available by April 1. More information is available at michiganbusiness.org/covid19/.
The problem for a small business affected by closure is that any type of loan is likely to involve a collateral commitment, which could open up an entrepreneur to additional financial exposure without being able to repay it. It will potentially cost them much more than their business.
Additionally, on March 23, the Federal Reserve announced that it would soon establish the Main Street Business Lending Program to support direct lending to qualifying small and medium businesses. This proposed program would operate essentially as interest-free business interruption loans. It would be an unprecedented mechanism for small businesses.
Finally, business owners who plan to apply for loans should first file business taxes for 2019, especially if it’s been a good year. Next, prepare a personal return as required by the SBA, gather the last three years of business and personal tax returns, and gather your last six months of operating expenses. Finally, you will need to provide a best-case and worst-case budget forecast and prepare an SBA debt schedule.
While the full economic impact of closed businesses, disrupted supply chains, and lost wages is still unknown, the work you do now will help strengthen your business, regardless of the outcome.
Roy Lamphier, based in Royal Oak, is CEO and Founder of Excelerate America, helping small business owners and entrepreneurs succeed through lifelong learning, responsibility, connection, inspiration and expertise. Visit excelerateamerica.com.