This is how we navigate the government stimulus packages

Shelter in place. Lock down. Stay home.

These are difficult times and we have all been forced to transform our lives for this new reality. For business owners and industry leaders this has been extra difficult. How do we keep the lights on? How do I pay my employees? Do I close? Do I dismiss people? Furlough? What comes next and when will it get better.

In the face of these difficult times, The “Coronavirus Aid, Relief, and Economic Security” (CARES) Act has become law and provides assistance to businesses in need. Up until this point the most important (and used options) of the act have been:

• EIDL Grants,
• SBA 7(a) loan (also know as PPP), and
• Payroll tax payment delays.

The PPP loan has been the most attractive opportunity with a loan up to 2.5 times average monthly payroll loans and promises of total forgiveness (though you will likely need to pay the interest, but it is only 1%).

The troubles with PPP

Though the program has not been ideal and has had its issues. The federal government’s $350 billion small business loan program got off to a rocky start, with some/most of the nation’s biggest lenders saying they weren’t yet able to process loan applications, discouraging business owners who are struggling to stay afloat.   After the initial confused start, it seems as though we’ve seen a smoother roll-out with additional lenders joining to assist small businesses.

However, we now face yet another problem with the program running out of money and falling short in the industries and states most battered by the crisis. This is simply unacceptable and risks waves of bankruptcies and millions of additional unemployed workers. From all reports I have read, funding for the PPP, could be exhausted as early as Wednesday night (04/15), meaning that the Small Business Administration would have to stop approving/accepting applications. As of early Wednesday afternoon, more than 1.3 million loans had been approved at a value of close to $300 billion.

Even though the funding is likely up, it would seem additional funding will be made available to support small businesses. Other than some red tape and hand bagging by politicians, more funds should be on the way. So do not give up hope if you did not get approved in this round and if you have not yet applied, please do get ready to apply.

IF you need assistance with the application process, my team and Iare more than happy to help, reach out.

While you are busy with this process and if you need a cash injection quickly,  the Economic Injury Disaster Loan Advance is a great option. The process is really quick, 15 minutes if you have all your business information handy, and allows you to receive up to $10,000. The SBA did announce a change to the program this week, “To ensure that the greatest number of applicants can receive assistance during this challenging time, the amount of your Advance will be determined by the number of your pre-disaster (i.e., as of January 31, 2020) employees. The Advance will provide $1,000 per employee up to a maximum of $10,000.”

No success with PPP, now what?

First let us take a step back. If you have not already, your business should begin by assessing its cash needs under various scenarios likely to impact operations. Make use of all your trusted advisors to try put together a best and worst case scenario and what your minimum needs will be to survive.

Variables to consider while building the model:

• What funds do you have available to you?
• Are your receivables recoverable and when?
• Overhead obligations over the next 1, 3, 6 and 12 months, focus on your payables, payroll and big-ticket items like rent, mortgage payments and debt payments.
• What revenue could you continue to generate and collect?

Be honest with yourself. This could be ugly and hurt a lot. It is likely going to show a reality you never believed you would find yourself or your business in. This is important. Understanding your real needs will help you decide on additional steps.

Once you have this picture, consider all your options for financing your business.

Do you have current debt that you could extend or maximize?

Do you have significant balance sheet leverage to take out new senior debt?

Are you able to make use of junior and equity capital? Can you make a capital call? Can you structure debt packages with current investors that could help you through this time?

Is there a way to restructure your operation to cut costs?

Is there any other government assistance I can apply for? You have two options PPP (discussed earlier) and Economic Injury Disaster Loan.

EIDL might be your saving grace

EIDL can provide up to $2 million of financial assistance to small businesses. It provides relief from economic injury caused by a disaster.

It is clearly less attractive than the PPP as  it has a lower maximum ($2M versus $10M), higher interest rate (3.75% versus 1%), and is not forgivable.

However, it does have its own positives like deferral of 1 year (versus 6 months) and 30-year maturity (versus 2 years).

So considering these pros and cons, and considering survival versus closing your business, the EIDL looks like a really good option. The question now is how do I apply for this option? There has not been a lot said or written about this in the media but the SBA is ready to take applications.

So, this is what we know. The loan is a working capital loan directly funded by Treasury. The maximum unsecured amount of the loan is $25,000. Small business, agriculture, aquiculture and non-profits can apply.

What are the criteria for a loan approval?

• Credit History - acceptable to SBA
• Ability to repay the SBA loan
• Eligibility

There are criteria around eligibility namely are you located (physical presence) within the declared disaster area (everywhere), have suffered, or are likely to suffer, substantial economic injury as a result of the disaster (everyone), you must be an independently owned and operated business, you o not have credit available elsewhere and few other technical points.

How can you use the loan funds?

• Fixed debts (rent, etc.)
• Payroll
• Accounts payable
• Operating expenses

Other criteria to consider is you do need a physical presence. A P.O. Box will not be sufficient. You also need to provide collateral. EIDL over $25,000 require collateral, SBA will not decline a loan for lack of collateral, but requires borrowers to pledge what is available.

Applications do require a significant amount of documentation including SBA Loan Application (SBA Form 5 or 5C), tax Information Authorization (IRS Form 4506T), complete copies of the most recent Federal Income Tax Return , Schedule of Liabilities (SBA Form 2202) and Personal Financial Statement (SBA Form 413). Additional information that maybe requested is latest tax returns and financials (this is where I can really help, why are you not using Protea Financial?).

So what is the game plan?

So, we have options. Theoretically many, but as noted some might not be available or we might be late on some of the more popular options.

The plan now is reach out to your trusted advisors and get your cash flow modeling updated as soon as possible.

Once you have this in hand, lets assess which funding options are available. If you have traditional debt or equity-based options available get in touch with your stakeholders and share your cash flow model. Let them understand your situation and the steps you are taking to make the best of this situation.

At the same time explore the government assistant programs.

Apply for the EIDL advance if you have employees.

Reach out to your bank and start the process of an application for PPP. Understand that you are late to the game and you are likely too late for the first round of funding. Do not let this stop you. Get that application in. Make sure you are in line for when new funding is made available.

Assess your need to apply for EIDL. It is an affordable option designed specifically for these situations. There is no harm in applying as this loan does not effect your eligibility for PPP. If it makes sense to you, get the application in. Get approved. A note on the SBA guidance to EIDL loans is once you have applied and approved, there is no obligation to take it. This is a safety net and could be the difference between surviving this uncertain time.

Lastly, and probably the most important piece of advice, communicate. Communicate with your stakeholders. Communicate with your customers. Communicate with your vendors. Communicate with your employees. Be open and honest. This builds trust and puts people at ease. When people trust you, they tend to accept tough decisions you make.

If you need any assistance with any of these steps please reach out. I am happy to talk through all options and share my thoughts and ideas. And if you need a trusted advisor, Protea Financial would be more than happy to assist.

Protea offers high quality bookkeeping and accounting at an affordable price.

While many organizations are adopting remote working, our business was configured to be remote from day 1 when Protea Financial was established in 2014.

Our experience has meant that we are able to help clients for whom remote working is new.

Reach out if you need any bookkeeping or accounting services or any advice on how to make remote working, work for you.

Protea also offer free evaluations of your accounting records to anyone that reaches out. Worst case scenario, you know how to make your books better. Best case scenario you start working with us and we make your books better.

https://proteafinancial.com/request-evaluation/