One of the first calls I got as the “Stay at Home” orders came down in Washington state was from a very successful business owner that had to shut down their autobody business. I expected their first question to be about how to apply for one of the announced, but not yet approved, Small Business Association (SBA) loans. Instead, the question was about the best way for him to financially support his employees if he was forced to furlough them and if there was anything extra he could do. The conversation shifted to the SBA options that could help him achieve his goal, but his first concern was with his people. As I made calls to all of my business owner clients, this was the rule, not the exception – how do I take care of my employees?
As I think about my business owner clients and their stories, almost all of them are first generation entrepreneurs – they didn’t get handed the keys to the business. They started with nothing, began to build something valuable, nearly lost it all in 2001 and/or in 2008, and then built it back up again. Some are successful sole proprietors taking care of their families, and some are larger businesses employing close to 200 employees around the country. Even those that are running multigenerational businesses had to work for everything they have gotten, starting from the bottom and earning their way to ownership. I include this information to bring home the fact that most small and medium sized business owners look nothing like what you see and hear about in the headlines. They live and work in our communities and are a critical part of our local economies.
Over the last few weeks as the various SBA programs were passed through Congress and went live through the banking system, word began to spread quickly that there were problems, especially with the larger national banks. There were website issues and most importantly, if you had a banking relationship, but not a loan/credit relationship, you would not be eligible to apply initially. While most of our clients had smaller community banking relationships, others were not so lucky. It did not matter if we helped them prepare all of the paperwork and documentation they would need, they were still denied access to the program.
Within a couple of weeks, the initial $349 billion of the Paycheck Protection Program funds were exhausted and the stories began to emerge of larger public companies getting access to the program, with some gaining access to over $50 million forgivable loans. While those companies may need access to those funds as well, this seemed to go against the initial announcement that these funds would be to support Main Street, not Wall Street. A new round of funding has been approved and I hope that this time around, smaller business that need access to those funds will have an easier path to applying and being accepted.
While getting access to the loan programs could be the difference in a business surviving until the economy is reopened and back to the level of activity it was prior to the shutdowns, there are other things that we have been discussing with our business owner clients that they should be considering right now:
1. Cash is King – Having access to cash will be critical for the foreseeable future. This can come from a variety of options. First, if your business is severely impacted by a “stay at home” order, you should consider applying for one of the SBA programs we detail at the end of the article. In addition, you may want to consider accessing your line of credit through your bank if you have one. While it is not normally advised to intentionally add debt to your balance sheet without a plan to invest it in the business, economic downturns can be the exception. Often banks will shutdown unused credit lines and it also becomes difficult to get access to new credit if it is not in place already.
2. The Small Things Matter – You need to treat your business just like you would your personal finances during financially challenging times. You need to review every item on your Income Statement and expense reports to determine what is essential and what can be eliminated or delayed.
3. Negotiate to Win – It has never been more important to be able to negotiate successfully with creditors, landlords, suppliers and other contracts you have in order to preserve cash. For more tips on navigating these challenges check out my blog post from earlier this month.
4. Go on Offense – If you are in the enviable position of having plenty of cash or in a business that is thriving now based on the needs of the community during these shutdowns, now may be the time to seek additional growth. Many industries have cut their advertising budgets as they look to survive or have had to layoff talented employees. With the right plan, your business may be able to come out the other side of this economic crises stronger than ever.
We are still in the beginning stages of this economic and societal global crisis. The data on the economy is just beginning to come in and we may be in for a longer road to recovery than we would like. For business owners, now is the time to Stress Test your personal and business financial plan to ensure you are not making critical mistakes or missing out on potential growth opportunities. Prior to the Coronavirus crisis, 77% of business owners surveyed felt they were working with unqualified professionals[i]. Now is the time to review your team and ensure you are working with only the best professionals that can guide you through these times.
For more information on the programs available through the CARES Act and additional stimulus programs, see the Resource Page and Small Business Owners Guide from the US Senate Committee on Small Business and Entrepreneurship.
[i] AES Nation Survey of 262 Business Owners in Q1 2016