Small businesses everywhere have been decimated by the effects of the coronavirus and its economic fallout. Calls for stepped-up social distancing and isolation measures have emptied offices and schools, keeping patrons out of restaurants and shoppers out of stores. Unemployment numbers are through the roof, and worse yet, nobody knows how long all of this is going to go on.
Just as the unemployed are desperate for relief, but finding the process of attaining it incredibly frustrating, many impacted small businesses are finding themselves in a similar boat. While the SBA’s Paycheck Protection Program (PPP) launched on April 3 as a $349 billion emergency loan program, the rollout has been turbulent given the massive amount of business applying from the start. Applications are being approved, but not all of this is happening as quickly as many would like.
Despite the rocky start, businesses should take comfort that they will be able to get the aid they need to keep their businesses from dying. The government has already recognized that the program is just the beginning and that additional funding is needed. Republicans and Democrats went back and forth on the solution on April 9, unfortunately ending the day in a stalemate until they go back to the drawing board on April 13. While the delay doesn't bode well for widespread, speedy relief, businesses and their lenders can at least expect additional money to be funneled into the PPP.
What's in the PPP?
According to the SBA's launch announcement (1), the program provides forgivable loans up to $10 million (with a fixed 1% interest rate and maturity of two years) to small businesses left financially distressed by the pandemic. These loans are to be administered at the local level by banks and credit unions. They are specifically to "maintain the viability of millions of small businesses struggling to meet payroll and day-to-day operating expenses."
The loans are to be provided without collateral requirements, personal guarantees, SBA fees, or credit elsewhere tests. They cover up to eight weeks of a business's average monthly payroll (based on 2019 figures), plus 25%. Payments are deferred for six months, and interest does accrue during this time. The portion of loan proceeds used for payroll costs and other eligible expenses for up to eight weeks will be forgiven, as long as 75% of loan proceeds are used for payroll costs. The other eligible expenses include mortgage interest, utilities, and additional wages paid to tipped employees.
Emergency Paid Leave Benefits
A new law passed in March requires qualified small business workers two weeks of paid leave if they are sick, quarantined, or seeking diagnosis or preventative care for COVID-19. It also extends to those caring for ill family members. The law also provides for 12 weeks of paid leave for those who must care for children as a result of the closing of schools and child care facilities.
There are exceptions, however. According to the New York Times (2), the Department of Labor gave the "smallest businesses" the ability to deny workers leave if it would actually put them out of business, pose “a substantial risk” to the company, or if there aren't “able, willing and qualified” workers to fill in.
Steps Small Businesses Can Take to Lessen the Impact
At this point, most businesses not deemed "essential" have either come to a halt completely (even if temporarily) or are managing to get done what they can with remote working scenarios that allow employees to work from their homes.
If you haven't done so already, it's a good time to begin cross-training employees to perform essential functions, if key staff members are unavailable.
Look for ways to maintain and/or restore cash flow while federal aid helps you take care of payroll and keeping the lights on.
Negotiate with clients and suppliers who are all feeling the impact of this just as much as you.
Stay in contact with your customers and remind them of the steps you're taking to provide your goods and services. Let them know that they are important to you and that you are doing everything you can to get through this.
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