Resources for small business
Federal, local governments work to help keep businesses going
The passage of a $2 trillion economic recovery package on Wednesday gave some hope to Massachusetts business owners who fear for their financial future. Others, however, are still preparing for months of debt or closing down their businesses altogether. President Trump signed the spending bill Friday, but time may be running out for many businesses across the commonwealth.
“This is an unprecedented response to an unprecedented crisis,” Senator Elizabeth Warren said Thursday during a press briefing. “Everyone is working in good faith to try to both respond to the health needs of people across this country and to cushion the economic blow from the coronavirus. So we’re going to stay after it.”
Both the government and community-based organizations have encouraged businesses to apply for loan programs and emergency relief funds. Money is flowing in from various sources. But in this unexpected time, many business owners don’t even know where to start.
Amplify Latinx held an online conference last week to brace the community for the coming months.
First step: Honest assessment
Juan Carlos Morales, a managing partner at Surfside Capital Advisors, said during the conference that business owners need to “hope for the best and prepare for the worst.” He said that owners should start these preparations with an honest assessment of their finances.
“You have to truly understand your financial picture,” he said. “If you don’t, you should seek help because this is going to be a little bit of a bumpy ride in the second quarter.”
This assessment includes taking inventory of available cash. Owners should predict their spending weeks in advance, taking stock of every single dollar earned or spent. Calculating a “monthly burn rate” will help business owners curb any excessive spending.
People should primarily focus on the “keep-the-lights-on” expenses, Morales said. “What I mean by that is those are your expenses that are mission-critical,” he added. “If it’s not mission-critical, they should be put on a deferment plan.”
In terms of short-term business strategies, Lawyers for Civil Rights “BizGrow” Director Priya Lane laid out a blueprint for dealing with employees. She noted the difference between laying off workers and furloughing them, or mandating that they take a leave of absence until business resumes as normal. She also acknowledged the Massachusetts WorkShare Program. The program, a self-proclaimed “smart alternative to layoffs,” allows workers to work fewer hours and still collect employment benefits. Government assistance is provided to make up for the reduction in income.
Morales emphasized the importance of reaching out for help. This help may come from an attorney, CPA, professional advisor or government-sponsored tech assistance program, he said.
“Seeking good advice in normal times is important,” he said. “Seeking good advice in crisis is essential.”
These advisors can help direct business owners to loan programs and available funding.
“Be on the lookout for opportunities,” Morales said, “because there’s going to be a lot of money in motion.”
He urged business owners to be active, noting that “some of the best opportunities and some of the greatest companies in America have been created out of a crisis period.”
Government loans and grants
Many loan programs are available, but some have already run out of funds. The Massachusetts Association of Community Development Corporations (MACDC), which represents 88 community-based nonprofits across the state, issued a statement Tuesday calling for a $150 million investment in loans, grants and technical assistance for small businesses.
“With the economy shut down, small businesses across the commonwealth are hurting and they’re hurting significantly,” MACDC President Joseph Kriesberg told the Banner. He added that efforts must focus on those most in need: “businesses in low and moderate income communities, communities of color, immigrant communities [and] folks who don’t have wealth to fall back on at this time.”
The MACDC statement also urges Massachusetts Growth Capital Corporation to expand its Small Business Recovery Loan fund, which offered $10 million in funding but is already oversubscribed. MGCC officials stopped taking applications last week.
On the national level, Sen. Warren noted Thursday that the $2 trillion emergency package covers part of the Small Business Administration’s Economic Injury Disaster Loan Program. She said that the package includes a $10 billion emergency grant fund that will commit an advance of $10,000 to small businesses and nonprofit applicants. These applicants receive the advance within three days of processing, and the grants do not need to be repaid. The money can cover ongoing expenses, including “to provide paid sick leave to employees, to maintain payroll, to meet increased production costs due to supply chain disruptions, or to pay business obligations, like meeting your debt obligations, rent and mortgage payments,” she said.
SBA’s Economic Injury Disaster Loans are loans of up to $2 million dollars. SBA’s official website notes that the loans “meet financial obligations and operating expenses that could have been met had the disaster not occurred.” The loans carry an interest rate of up to 3.75% for companies and 2.75% for nonprofits, said Warren, as well as principal and interest deferment for up to four years.
Warren also noted that the Treasury is authorizing many banks and lending institutions to become SBA lenders. Small business owners can go to local banks and apply for funding there.
The emergency package also commits $17 billion in funding for small businesses that have microloans. The SBA intends to cover all loan payments for existing SBA borrowers, available for six months after the bill is signed.
Along with the SBA, Warren added that there is a “special new stimulus program” with $350 billion in funding, which intends to provide small businesses and other entities with “no-fee loans of up to $10 million.” The loans are administered directly by banks. It also acts as a loan forgiveness program, said Warren, and some loans are waived depending on whether certain businesses can rehire employees and get payroll back to where it was before the crisis.
Other loan programs
Not all loan programs are government-based. Eastern Bank has committed $10 million in support of small businesses.
“Here at Eastern, we obviously realize the impact that the coronavirus has had on both our customers and our small businesses,” Eastern Bank President Quincy Miller told the Banner. “In many ways, this has been unprecedented, in the way that it has had such a fast and wide-reaching impact across our base of clients and customers.”
The funding is split into three key parts, with $3 million going to nonprofit partners through Eastern Bank’s Charitable Foundation, and two loan funds.
Families and individuals have access to $2 million through the Consumer Impact Loan Fund.
“It was designed with low interest and flexible payment terms in mind,” said Miller. “We knew in the short term, this is what our customers need.”
The third key component is $5 million fund for small businesses. There’s a 3.99% interest rate on the loans, said Miller, and the first six months are interest-only payments.
“Both funds are up and running,” said Miller. “We’ve been taking numerous applications already as we speak.”
Cautions for borrowers
Despite the available options, MACDC’s Kriesberg said that loans alone are not enough.
“When you’ve lost all or nearly all of your revenue, taking on more debt will only make the situation worse,” he told the Banner. “We think a well-tailored, targeted grant program can help some of our smaller businesses get over this period and be able to come back and serve their communities.”
Morales noted that even businesses who want loans may face some hurdles.
“These loans are not going to be as easy to get as it sounds,” he said. Small businesses must meet the criteria to qualify for a loan: they must prove they’ve been impacted by the crisis, as well as have a viable business model and good credit score.
Lane warned business owners against giving a personal guarantee along with loans.
“If you give a personal guarantee as part of a loan, [then] if you close the business you will still be personally responsible for that,” she said.
Nevertheless, the Eastern Bank president still urged small businesses to consider loans despite potential fears. “Pick up the phone and call and speak with your financial institution,” Miller said. “Because every bank is different, but I’ve talked to countless bankers in greater Boston and they’re all putting together programs to help support their clients.” He commended bankers for being as flexible as possible.
Community support systems
Community-based organizations across the commonwealth are scrambling to provide additional support for small businesses. The Foundation for Business Equity, a Boston-based nonprofit, focuses on “fostering greater economic mobility through the growth of black and Latinx-owned businesses.” The nonprofit has established a crisis management team to deal with the pandemic’s devastation.
“This is a whole different level of crisis with external forces. It’s unpredictable day to day in some ways,” Executive Director Glynn Lloyd told the Banner. “So we really try to get a sense of what it looks like the next three to six months, with your particular business, and then you can make decisions from that.”
Lloyd said that crisis management experts use “financial forecasting” to determine a business’s future.
“Certain folks react different ways under this type of duress,” he said. “We want to make sure you have people that have been through some of these experiences and can help you think through.”
An uncertain future
At the end of the day, some businesses may still decide to shut their doors.
“At some points your debts might just get so high that you feel like you can never surmount it, and that’s okay,” said Lane. “It’s okay to admit you’re onto the next thing.” The business may then prepare for succession, discharge any debts and liquidate their remaining assets.
Regardless of the decisions, Morales stressed the importance of acting quickly.
“A lot of people defer the inevitable and take longer than they should in making very difficult decisions,” he said. “This is not the time to wibble-wobble. This is the time to be decisive and make difficult decisions, because it could be the difference between your business being alive in three months and your business not being alive in three months.”