As the economic impact from the COVID-19 pandemic continues to unfold, many small businesses are facing unprecedented financial challenges, especially relating to cash flow and liquidity constraints for those that have temporarily ceased operations as a result of government orders. We encourage all small businesses to be proactive in taking steps to address these challenges by considering the following actions:
- Prepare and review cash flow projections for the next twelve months, keeping in mind worst case scenarios in regard to lost revenue.
- Discuss more lenient or deferred payment terms with third party lenders.
- Review outstanding payables and consider discussing more lenient and feasible payment plans with vendors.
- Discuss with landlords the possibility of deferring rent payments for a specific period of time.
- Seek out and take advantage of deferment programs offered by utility companies.
- Take advantage of deferred payment programs provided by insurance companies related to workers compensation insurance, group medical insurance, or general liability insurance.
- For more substantial cash needs, seek financial assistance from the Small Business Administration (SBA), which is a federal government funding option or the organization designated in your specific state to provide loans to small businesses (see below for more details on this option).
How JFS Can Help
Our tax and accounting team is here to assist during this challenging time. Specifically, we can help small business owners with the following:
- Assist in thinking through and evaluating the various options available to small businesses.
- Prepare cash flow projections and scenario analyses to help evaluate future cash flow needs.
- Communicate with lenders and vendors on our clients’ behalf to request a restructuring of payment terms.
- Prepare or assist with applications for SBA or local state loans and assistance.
Small Business Loan Options
Working through temporary cash flow needs is likely one of the highest priorities for small businesses over the next several weeks and months. This need for cash may require businesses that historically have accepted little or no debt to seek a loan from the SBA or other state organization. Currently, small businesses can gain access to Economic Injury Disaster Loans (EIDLs) from the SBA. This loan program is designed for businesses who have sustained substantial economic injury and are located in a declared disaster area. As a result of the COVID-19 pandemic, the SBA has designated all 50 states to be part of a declared disaster area.
Additionally, the phase three stimulus package that has recently made its way through the U.S. Senate and is likely to pass in the House and be signed into law by President Trump includes around $350 billion for small business loans. These loans may convert into grants that will not have to be repaid by the small business if the funds are used for certain purposes. We will have more specific information on this anticipated loan facility in a future communication once the phase three stimulus package is finalized and signed into law.
Lastly, many states have state-level financial assistance plans for small businesses that are in need of financing. Below we provide more specifics on the SBA EIDLs as well as state financial assistance plans.
SBA Economic Injury Disaster Loans
- Availability – EIDLs are available to small businesses, typically less than 500 employees, located and operating in a designated disaster area within the U.S.
- Terms – Will be determined on a case-by-case basis. The potential inability for a small business to qualify for a loan from other entities does not preclude the SBA from granting the loan.
- Amount – Based on working capital needs up to a maximum of $2 million with a repayment period of 30 years.
- Interest Rates – 3.75% for small businesses and 2.75% for not-for-profit entities.
- Penalties and Fees – There are no penalties or fees.
- Submission Process – Online or paper via mail. Approval process takes three to four weeks.
- Application Deadline – Businesses must apply by December 16, 2020.
Various states are providing financial assistance for small businesses. The following is a list of select states and their current programs. This list is not all encompassing.
- Pennsylvania – Pennsylvania Industrial Development Authority (PIDA) loans are designated for businesses with 50 or fewer employees. Maximum loan is $100,000 per business, with a 3 year payment plan.
- Ohio – No COVID-19 specific financial assistance or loan programs are available at this point. However, various Ohio governmental agencies are allowing for deferred payments with no interest or penalties for up to 60 days. Some of the agencies consist of the Ohio Bureau of Workers Compensation and the Ohio Department of Transportation.
- New Jersey – New Jersey Economic Development Authority (NJEDA) has no COVID-19 specific loans or financial assistance currently available. However, the NJEDA has a portfolio of loans and financing programs available for small to medium size businesses.
- Illinois – Department of Commerce & Economic Opportunity (DCEO) offers a Hospitality Emergency Grant Program to Bars and Restaurants with a valid license to serve food or liquor with annual revenues of less than $1 million in 2019 and for hotels with annual revenues of less than $8 million in 2019. Grant applications are due by 5:00 pm on April 1, 2020. Grants range from $10,000 to $50,000. The Illinois Department of Financial and Professional Regulation (IDFPR) is establishing the Illinois Small Business Emergency Loan Fund that will offer small businesses low interest loans up to $50,000.
The fallout from the COVID-19 pandemic continues to develop rapidly. Small businesses will face many challenges over the next several weeks and months that they may never have faced in the past. At JFS, we will continue to work diligently each day to provide guidance, support, and peace-of-mind during this time of great uncertainty. We have the capability and capacity to help you and any other associates you may have that need guidance and assistance during this time.
In the meantime, we wish you all health and safety as we work through these challenges together.
We encourage you to forward this to a family member, friend, or colleague you believe would find the information helpful. Clients are encouraged to reach out to Karen Abusaleh to discuss their specific circumstances and needs. She can be reached at 724-383-1734 or at firstname.lastname@example.org.