Update 3.19.20 – SBA Officially Opens Disaster Assistance Program For Small Businesses with the potential of getting the loan completely forgiven depending upon specific circumstances with your business. Learn more by clicking here
At LB&J CPA, we strive to help provide the most relevant business preparation, strategic accounting, proactive tax minimization and financial planning for small businesses. With the Coronavirus likely to have a rather big impact on many small businesses, we wanted to make sure people were aware of the ways the Government plans to help aid small businesses negatively affected by the virus and how to take action on any of this assistance.
For those small businesses impacted by the Coronavirus, the SBA (U.S. Small Business Association) will be accepting applications for low-interest rate loans to help with working capital. When the program is released, the website to apply for SBA Disaster Assistance is https://www.sba.gov/funding-programs/disaster-assistance.
We can all see that the country is starting to shut schools down for a few weeks as the Coronavirus is spreading. Doctors have indicated that the Coronavirus may fizzle out in the Summer, which indicates that businesses may be impacted for several months, not weeks.
Small businesses will be significantly impacted by this as people will be spending less. The SBA will be accepting applications under their Disaster Assistance Program to help businesses with short-term working capital needs. The SBA will be lending up to $2 Million Dollars for those businesses impacted by the Coronavirus at an interest rate of 3.75%. The payback period may be as long as 30-years.
It is important to understand that the funds are for working capital only and will be “need-based”. As such, it is important that any business looking to apply for the SBA’s Disaster Assistance get their affairs in order to prove that the business has a need. What does this mean? Businesses will have to prove that their business is suffering by providing documents such as Sales Reports, Year-to-Date financial statements, and past income tax returns. So if you are behind on your accounting or filing your tax returns, get them completed and up to date immediately.
Because of the flood of applications that will be going into the SBA for financial assistance, it is important that businesses be proactive and get their affairs in order so not only are they the first ones in line to request funds, but also they have easy access to all of the necessary documents to make this process seamless.
How much a business needs in financial assistance is not always easy to calculate, however, if the economy does not get back on track until the Summer, a business may need to request 4 to 6 months of operating expenses plus enough funds for the owner(s) to pay their personal bills. A business is better off asking for more money than needed, rather than less.
In the meantime, businesses and business owners should assess how the Coronavirus has impacted them thus far and make appropriate steps to reduce their financial risks by decreasing their monthly expenses. Businesses should not automatically expect the SBA to give them financial assistance. They should hope for the best, but be prepared for the worst. Some of the things they can do are:
- Reduce Payroll – Having employees work a few hours less a day if possible will save over the long-run.
- Reduce unnecessary spending – Of course all business expenses tend to be necessary, but there are always those expenses that you can turn off for a few months and turn back on later. Advertising expenses may be an example. If no one is going to spend money because they are staying at home, businesses may consider reducing their advertising budgets for a few months. Some businesses spend up to 25% of their revenues on advertising.
- Zero % Interest on Credit Card – Having debt on a business is never a good thing, but if a business can convert expenses to a zero percent credit card to hedge themselves for the next 6 months, it may be worth considering.
- Hold less inventory – If a business sells a product, holding less inventory may be a good way to reduce expenses for the short-term. At the same time, with shipments from Europe and China at a halt, getting access to products may be difficult.
- Close on your slowest days – If a business has days that are typically slower than other days, closing the business for those days may be an option. The business would need to make sure they inform customers that they are closed for the day and not out of business.
Each business is unique to another so there is no instruction book on what to do in case of a crisis. Business owners impacted by the Coronavirus are certainly stressed. We can only hope that the SBA’s Disaster Assistance Program will act quickly to provide the necessary aid to America’s small businesses.