Rapid Blog: Small business tips and disaster relief lending process during COVID-19

On March 12, 2020, the Trump administration announced, in conjunction with the Small Business Association (SBA), a plan to assist the country’s 30 million small businesses to help them with Coronavirus-related economic disruptions. The President asked Congress to increase funding to the SBA by $50 billion. The SBA will work directly with state Governors to provide targeted, low-interest disaster recovery loans to small businesses that have been severely impacted by the situation. 
 
SBA Coronavirus (COVID-19) Disaster Relief Lending Process

• The U.S. Small Business Administration is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19). Upon a request received from a state's or territory's Governor, SBA will issue under its own authority, as provided by the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by the President, an Economic Injury Disaster Loan declaration.
• Any such Economic Injury Disaster Loan assistance declaration issued by the SBA makes loans available to small businesses and private, non-profit organizations in designated areas of a state or territory to help alleviate economic injury caused by the Coronavirus (COVID-19).
• SBA's Office of Disaster Assistance will coordinate with the state's or territory's Governor to submit the request for Economic Injury Disaster Loan assistance. 
• Once a declaration is made for designated areas within a state, the information on the application process for Economic Injury Disaster Loan assistance will be made available to all affected communities. 
• SBA's Economic Injury Disaster Loans offer up to $2 million in assistance and can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.   
• These loans will help small businesses meet payroll; stay liquid during drops in customer demand or delayed payments; and look for alternatives or manage supply chain issues. The interest rate is 3.75% for small businesses without credit available elsewhere; businesses with credit available elsewhere are not eligible. The interest rate for non-profits is 2.75%. 
• SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower's ability to repay.

What else can small business owners do?

Cash flows will be uncertain throughout this disruption and trying to predict what will happen will be a challenge. Conserving cash is most critical during this period. If your small business has access to a line of credit, it makes sense to draw on this credit to provide a liquidity buffer. Have a conversation with your bank and work on a strategy for your business disruption.

Regarding upcoming tax payments, President Trump announced a tax holiday for businesses. The plan will allow business owners to delay paying taxes normally due on April 15 for 90 days without interest or penalty.

Be flexible but understand your cost structure.  Remaining open for business throughout the crisis might seem logical from a revenue perspective, but if your business can’t cover its costs, then as hard as it might be, temporarily closing your doors will help you preserve cash.

If you have business interruption insurance, contact your carrier to discuss coverage and potential relief options.
 
Brian Schwartz, CFA, was the head commercial MBS trader for RBS Greenwich Capital Markets from 2000 to 2006, where he was responsible for trading the Firm’s proprietary Commercial MBS positions and also hedging the Firm’s large portfolio of commercial real estate loans. Since moving back to Grand Rapids, Schwartz has taught Economics at Grand Valley State University, consulted with a high net worth family regarding their “alternatives” portfolio, and started a Great Lakes inspired retail clothing and accessories’ company called eightyfive MILES that contributes a portion of revenues to Great Lakes’ conservation.