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COVID-19 Cash Flow Constraints: What Businesses Can Do To Stay Open

COVID-19 Resources

COVID-19 Cash Flow Constraints: What Businesses Can Do To Stay Open

Updated: Mar 27, 2020

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For business owners, cash has always been king. Even during the best of times, cash flow is something that entrepreneurs like you must manage daily. Forget to pay a supplier, and all of the balls you’re juggling could come crashing down in an instant. Now that COVID-19, also known as coronavirus, has gripped the global economy, a wrench has been thrown into the cash flow plans of business owners everywhere. 

Not every business is fortunate enough to be among those that are selling items people are stockpiling throughout this crisis, like toilet paper. (Don’t even get me started.) Businesses that are deemed non-essential in some states have been forced to temporarily shut down physical locations through no fault of their own. The first thing to remember is you’re not alone. 

Even businesses operating in sectors deemed essential are feeling the coronavirus cash flow constraints as supply chains become disrupted, and retailers become more selective. For some, government contracts have come to a screeching halt. Meanwhile, these business owners have rent to pay and employees that they have no intention of losing. Fortunately, coronavirus cash flow problems don’t mean you have to close your doors forever. 

Get creative to deal with COVID-19 cash flow constraints 

Even if you don’t run an e-commerce company, that doesn’t mean you can’t go online to keep your business relevant. Now is the time to reach out to your network on social media, email them with coupons, or just give a nudge to remind people that you are there or that you offer gift cards, for example. 

In fact, there is an initiative dubbed “Help Main Street!”. This program facilitates the purchase of gift cards, putting cash in the hands of the business owner today, and giving the customer the ability to use the gift card when businesses reopen. 

A similar concept for dealing with cash flow problems from coronavirus has been developed for the restaurant industry. It involves what’s been dubbed a Dining Bond, which is akin to a savings bond and is redeemable to customers at a later date. 

Streaming fitness businesses are getting in on this, too. They’re offering free online workout videos to people during this time of quarantine. While that might not help ease your cash flow constraints, it could be a way to connect with your customers during this time.

Cut expenses 

An effective way to deal with COVID-19 cash flow constraints: Cut out whatever costs you can. Instead, focus on your most essential expenses. Not all landlords might offer extra time to pay rent, but it doesn’t hurt to ask. The same applies to interest on your existing debt – ask the lender if they will waive interest for a while. 

Experts suggest that you avoid layoffs at all costs. By not firing employees, it will likely create loyalty and prevent them from going to a competitor when the smoke clears. Understandably, not every business owner can hang on for a couple of weeks, let alone a couple of months when facing these coronavirus cash flow problems. The JPMorgan Institute estimates that the average small business has enough cash to tide them over for 27 days, but anecdotal evidence suggests it might be less. This is where an emergency business loan can come in. 

Emergency loans can address small business cash flow constraints

If your business is feeling the impact of the coronavirus, you may want to apply for a small business disaster loan sooner than later. Uncle Sam has opened the spigots to help small businesses survive during this trying time with low-interest rate loans. If you are struggling with COVID-19 cash flow constraints, this could be the right solution for you. 

Available now through the Small Business Administration (SBA):

  1. Economic Injury Disaster Loan (EIDL) 
  2. Economic Injury Disaster Grant

Funding Circle, the largest small business lending fintech is one of a few non-depository online lenders in the United States that was recently approved to provide Paycheck Protection Program loans. We offer the PPP application in four languages: English, Spanish, Mandarin and Hindi. 

  1. Paycheck Protection Program (PPP), is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.

Economic Injury Disaster Loan (EIDL) Overview

Small business owners may apply on the Small Business Administration (SBA) website for an Economic Injury Disaster Loan (EIDL) up to $2 million. An overview of loan criteria is below: 

  • Loan amount up to $2 million. 
  • The term is up to 30 years.
  • Interest Rates are 3.75% for small business and (2.75% for non-profits). 
  • The first month’s payments are deferred a full year from the date of the promissory note.
  • The SBA may approve EIDLS based solely on an applicant’s credit score (no repayment ability and no tax return is required). 
  • Prior bankruptcy does not disqualify you.
  • EIDLS smaller than $200,000 may be approved without a personal guarantee. 
  • SBA is also not requiring real estate as collateral and will accept a general security interest in business property.

Economic Injury Disaster Loan Eligibility

In addition to the entities that are already eligible for SBA disaster loans (small businesses, private non-profits, and small agriculture cooperatives), eligibility is temporarily expanded to include:

  • Business entities with 500 or fewer employees.
  • Sole proprietorships, with or without employees.
  • Independent contractors.
  • Cooperatives and employee owned businesses.
  • Tribal small businesses.
  • Private non-profits of any size.

Additionally, you must have been in business as of January 31, 2020. Expanded eligibility criteria and the emergency grants are only available between January 31, 2020, and December 31, 2020.

How to Apply for a Economic Injury Disaster Loan (EIDL)

  • You can apply for an EIDL are online with the SBA here: https://covid19relief.sba.gov/#/
  • When you apply, you can request an emergency grant of $10,000.
  • The CARES Act stipulates the SBA will provide the grant within 3 days of receiving your application.
  • You will not have to repay the grant, even if your application for a loan is denied.
  • You can visit an SBA resource partner who can help guide you through the loan application process. You can find your nearest Small Business Development Center (SBDC) or Women’s Business Center here: https://www.sba.gov/local-assistance

Economic Injury Disaster Grant

As part of the Economic Injury Disaster Loan application process, you may qualify to receive a one time grant of up to $10,000. More details of this program are below. 

  • When you apply, you can request an emergency grant of up to $10,000 in which the SBA will provide the grant as soon as three days after receiving your application.
  • Customers may receive $10,000 in an emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue loss.
  • You will not have to repay the grant, even if your application for a loan is denied.

Funding Circle recommends applying as soon as possible for the grant because Congress only allocated $10 billion for this program and it is first come first serve.

Paycheck Protection Program (PPP)

Funding Circle, the largest small business lending fintech is one of a few non-depository online lenders in the United States that was recently approved to provide Paycheck Protection Program loans. We offer the PPP application in four languages: English, Spanish, Mandarin and Hindi. 

The Paycheck Protection Program (PPP) will serve as an extension of the Small Business Administration (SBA) 7(a) loan program, allowing small businesses to apply for federally guaranteed, forgivable loans. Preliminary details for this program are found below (subject to change):

  • 1% interest rate.
  • Maturity of 2 years.
  • First payment deferred for six months.
  • 100% guarantee by SBA.
  • No collateral.
  • No personal guarantees.
  • No borrower or lender fees payable to SBA.
  • Loan forgiveness if proceeds used for payroll costs and other designated business operating expenses in the 8 weeks following the date of loan origination (due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs).
  • Payroll costs are capped at $100,000 on an annualized basis for each employee.
  • Application through Funding Circle. 

Paycheck Protection Program (PPP) Eligibility

  • All businesses – including nonprofits, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees can apply. Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries (click HERE for additional detail). 
  • Apply through Funding Circle until June 30, 2020 (subject to SBA approval, Funding Circle and our partners will start processing these applications). 

Can I apply for both the Economic Injury Disaster Loan (EIDL), Grant and the Paycheck Protection Program (PPP) loan? 

Yes. If you apply for an Economic Injury Disaster Loan (EIDL) through the SBA, you can also apply for a Paycheck Protection Program loan through Funding Circle (subject to SBA approval, Funding Circle and our partners will start processing these applications). However, the amount forgiven under a Paycheck Protection Program will be decreased by any EIDL grant you receive. 

Additional grant options

Big Tech is also stepping up, with social media giant Facebook offering $100 million in financial support via cash grants and ad credits to businesses suffering from COVID-19 cash flow constraints. The ad credits could go a long way toward engaging with the community during the outbreak. 

Using business credit cards to lessen COVID-19 cash flow constraints

Credit cards are another way to gain quick access to funds and address small business cash flow problems. You can find great flexibility with business credit cards for both spending and payment terms, which could be a lifesaver during COVID-19 cash flow constraints. 

One card with such features is the American Express Business Platinum Card, which offers a “flexible payment plan with interest,” as well as loyalty rewards and bonuses that apply toward expenses on platforms like Amazon. Another card that would come in handy is the Ink Business Cash Credit Card, which has a zero APR for the first year. 

Short-term pain, long-term gain 

Another way you can look at the situation is that the short-term pain from coronavirus cash flow problems could produce long-term gains. Just think of the pent-up demand for your produce or service once life as usual returns.

And as unfortunate as it sounds, not all of your competitors are going to make it through this coronavirus crisis. If you do, it means your share of the pie will increase. 

Know your options on how to deal with COVID-19 cash flow constraints. You’re not alone in dealing with the impact on your small business. Funding Circle is the world’s largest online small business lender. We can connect you to Paycheck Protection Program loans offered through the SBA. Subject to government approval, Funding Circle and our partners will start processing these applications (subject to SBA approval, Funding Circle and our partners will start processing these applications). Register to secure your spot in line now. CLICK HERE.

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