On May 6th the Founders of Mana Financial Life Design, Stephanie Bucko and Cristina Livadary, hosted a Facebook Live on Torani’s Foodservice Family to answer operators’ questions about finances for their business amidst COVID-19. Below we have broken down Stephanie and Cristina’s responses to the top questions small business owners are asking right now.

In case you missed the video, you can still view it here. 

1.  How do you know if you qualify for a small business loan due to COVID-19?

The qualifications of being a “small business” are defined by the SBA. As long as your business is 500 people or less you qualify as a small business. The CARES Act did extend the rules for hospitality/restaurant businesses to 500 people or less per location.

2.  Any tips for getting a PPP?

(PPP stands for the Paycheck Protection Program)

Apply as soon as possible! The funds were replenished last week and we’re hearing more stories of our small business owner clients receiving funds this week (week of May 4th, 2020). It’s on a first come first serve basis.
Before you apply, we recommend getting organized!

Paperwork needed:

  • Proof you were in business before Feb. 15, 2020 (if you’re a new business you can go off of 2020)
  • Proof you had employees, contractors or payroll expenses
  • Loan calculation based on Payroll
  • Tax returns (2018 and 2019)
  • EIN documentation
  • Payroll tax return

The clients that have had the most success were the ones who were the most organized. If you work with a bookkeeper or a CPA, get them involved in helping you prepare to apply. If you don’t have the right documents you WILL get rejected.

How to apply:

First apply with your local or regional bank. If you don’t have one, apply at PayPal, Lendio, and Kabbage. First application to go through will cancel the others.

If you do not apply or are ineligible for the PPP, you may be eligible for an Employee Retention Tax Credit up to $10,000 per employee.

What about EIDL?

Another program that exists is the EIDL- small business owners in all U.S. states, Washington D.C., and territories were able to apply for an Economic Injury Disaster Loan advance of up to $10,000 (this portion is also being called a grant, meaning it doesn’t need to be paid back). This advance is designed to provide economic relief to businesses that are currently experiencing a temporary loss of revenue. This loan advance will not have to be repaid. Even if your business is denied a loan, you can still access this grant, which can be used to provide employee sick leave, maintain payroll or meet other needs like paying rent.

The deadline to apply for the EIDL as a non-agricultural small business was April 15th. At this time, only agricultural business applications will be accepted due to limitations in funding availability and the unprecedented submission of applications already received. Applicants who have already submitted their applications will continue to be processed on a first-come, first-served basis. But keep your ears open for changes!

What about working capital loans?

As part of its disaster assistance program, the SBA is providing working capital loans of up to $2 million to small businesses and nonprofits affected by the coronavirus. These loans carry an interest rate of 3.75% for small businesses and 2.75% for nonprofits. Loan repayment terms vary by applicant, up to a maximum of 30 years. The stimulus updated the program so that sole proprietors and businesses with fewer than 500 employees qualify, and applicants don’t need to provide a personal guarantee on loans under $200,000. Payments can also be deferred for up to four years.

3.  Is there any other financial assistance out there?

The answer is YES, but the timing is always very dependent, so as always the sooner the better. It’s important to be actively looking for opportunities. Utilize the help of financial advisors, CPAs, and book keepers to help keep you informed.

We’ve seen a number of states and cities step up to assist small businesses. Some examples include:

  • The city of SF through the San Francisco Hardship Emergency Loan Program.
  • The City of Los Angeles Small Business Emergency Microloan Program, businesses and microenterprises in Los Angeles that are responsible for providing low-income jobs can get an emergency microloan of $5,000 to $20,000.
  • The Denver Small Business Emergency Relief program offers cash grants of up to $7,500 to businesses in industries particularly hard-hit by the coronavirus.
  • Small businesses in Louisiana can apply for the Louisiana Loan Portfolio Guaranty Program.
  • Minnesota now has two loan programs available for businesses impacted by the coronavirus pandemic. The Small Business Emergency Loan Program and The Minnesota Small Business Loan Guarantee Program will provide an 80% guarantee on loans of up to $200,000 to help lenders provide funding to businesses.

There are a ton of resources online - your best bet is to Google “small business relief” in either your city or state and you will find a number of resources. If you’re looking for more guidance, we’ve heard a few clients tell us that they’ve had success when contacting their local state senator’s office and asking for guidance.

4.  How to negotiate with your landlord and your insurance company to reduce or defer payments.

Many tenants are wondering what will happen to rents in the future. Anticipating what comes next is an important part of negotiating with your landlord. In most cases, you will still be legally obligated to pay rent and TMI (taxes, maintenance, insurance), even in the midst of the COVID-19 pandemic.

Amid so much uncertainty, landlords will likely do what they can to keep their tenants in place. Everyone has bargaining power these days. The vacancy rate is going to go up and landlords will be more interested in trying to retain their tenants to keep their cash flow going.

Your best strategy for negotiating your lease includes keeping it polite, trying to go month to month and leveraging your track record. However, it’s important to remember that with courts closed landlords don’t currently have any remedy if you choose not to renew your lease at the rate they want—you cannot be evicted and if they accept payment beyond your lease term you will, by default, become a month-to-month tenant. That means you have time to consider your options.

Start by saying ‘I’d like to renew at the same rent or lower given the current economic conditions.' If you have always paid your rent on time, your landlord will be more likely to be open to keeping your rent flat or considering a lower payment.

After opening up a dialogue, the next step is to work out a potential compromise that works for both parties. When working on a compromise with your landlord, it’s important to understand some of the most common strategies for restructuring leases:

  • Rent Deferral: Rent payments or a portion of those payments are postponed for a certain period.
  • Rent Abatement: Rent payments or a portion of those payments are suspended for a certain period.
  • Rent Reduction: Rent payments are reduced for a portion or all of the term left on the lease.
  • Loan Conversion: Past due rent payments are converted into a payable loan over time, however the tenant continues to pay the current rent.

Though not every option is available to every tenant, some potential compromises can include:

  • Paying a portion of your rent and TMI to your landlord.
  • Paying TMI only and asking for a rent deferments (sometimes known as a “rent holiday”).
  • Deferring your rent entirely for a predetermined period and then paying back a percentage of the amount due over a defined period (e.g. two years).
  • Deferring TMI and paying partial rent.
  • Agreeing to a longer term lease at a lower rate.
  • Creating a shorter term lease agreement that expires when normal business operations resume.

5.  Details of the loans/grants - such as repayment obligations and what it can be used for?

For EIDL, a portion will be given in a Grant (up to $10k) - which is forgiven. We’ve seen the amount that people are getting as the grant has been around $1k /employee. You can use it for anything.

For PPP, the calculation is based off of 2.5x your monthly payroll. What can be forgiven is 2 months of payroll + rent/mortgage, retirement benefits for employees, etc….In all likelihood you could get the entirety of your PPP loan. If there’s any remaining balance, nothing needs to be paid for the next 6 months. 1% interest rate, you can pay as fast as you want. The key is the number of employees. You must maintain the same amount of employees for at least the two months following.

6. What types of financial things do small business owners need to think about as they start back up again?

Run projections through the end of the year using a worst case scenario. Even though the PPP is a good thing, if your business will be hurt badly by bringing back all your employees, then it may make more sense to have them seek unemployment. From the rests we’ve heard, it’s clear that operating at 50% capacity isn’t a viable business for many.

Find a bookkeeper that helps you think through these numbers. Worthwhile expense.

7.  How do I know if it’s better to lay off employees (so they can get unemployment) or continue to pay them out of reserves if I qualify for a SBA loan?

If keeping your employees is going to cause your business financial harm or worse becoming insolvent, then you’d be better off having your employees seek unemployment insurance individually. And be very transparent with them about the intent to hire them back once this has passed. The federal government has provided $600 extra to unemployment insurance so in many cases they might make more money through unemployment insurance than your paycheck.

8. What financial considerations should businesses make if they can only re-open with less occupancy?

Things to consider would be what drives your business’ revenue. Think about what the bare minimum is that you need to keep your business solvent. Remember, that this will pass, but you need to focus on remaining afloat for the next few months. This is the time to GET LEAN. Think of ways to cut expenses and bring in new streams of revenue. Try to be create about the way your business brings in revenue. Utilize marketing and social media to get exposure with your customers.