Being a business owner is one of the most challenging jobs out there — not only are you responsible for the success of your business, you’re also responsible for the livelihood of all of your employees. Naturally, when national financial concerns arise, business owners are usually the first to feel the pain. During the COVID-19 pandemic, many business owners were forced to close down, and others were restricted to online sales. Even though many states have now reopened, there is no certainty about what the world will look like going forward. It’s no shock that many, many business owners are in financial distress with no clear idea of what to do next.
If you’re a business owner, we’ve got some tips for you to keep you and your business financially stable.
What resources are available to me?
On March 27, 2020, the CARES Act was signed into law, creating $376 billion in incentives for businesses who need support during the COVID-19 outbreak. Four funding options were created:
- Paycheck Protection Program (PPP). The PPP encourages employers to keep their employees on the payroll by offering to pay for most or all of their payroll, then forgiving the loan. A variety of businesses are eligible for this program, not just small businesses. In order to have the loan forgiven, the funds must be used for payroll, interest on mortgages, rent and utilities. If it isn’t, your loan payments are deferred for six months before they must be repaid. The loan amount you receive is calculated depending on your payroll costs per month, health insurance contributions, taxes, and more. In order to participate, you will need to reach out to your bank or another verified lender.
- Economic Injury Disaster Loan Emergency Advance. Though applications are closed for this loan, it is possible that there may be more opportunities in the future to apply. This loan program provides an advance of up to $10,000 to companies who are experiencing a loss of revenue. This is intended only for businesses who have less than 500 employees or if they meet SBA size standards for their industry. Generally, their funds are available within days of an accepted application.
- SBA Express Bridge Loan. If your business has used an SBA Express Lender in the past, you may be eligible to receive $25,000 for your company as a bridge loan. This generally is used as an interim loan for those awaiting more from the Economic Injury Disaster Loan.
- SBA Debt Relief. The Small Business Administration is helping debt relief by paying six months of loans for several different SBA loan types. This includes 7(a) loans, 504 loans and micro loans disbursed prior to September 27, 2020. There is nothing you need to do to get this debt relief — it will be applied automatically if you have any eligible loans.
When is it time to file for bankruptcy?
Unfortunately, it may be impossible for your business to recover from the financial distress caused by COVID-19. If this is the case, it may be time to file for bankruptcy. Before filing, there’s a few things you should know:
- Bankruptcy is a last resort. You need to explore all of your options before filing for bankruptcy unnecessarily. Look for alternate cashflow sources and consider getting support from stakeholders if you are able to. Consider asking your landlord or other vendors if you can lower payments for a short period of time while getting your finances in order.
- Closing isn’t your only option. There are several different kinds of bankruptcy, and some don’t force your business to close. Chapter 11 bankruptcy, for example, helps to reorganize your debt so you can make payments, while Chapter 7 bankruptcy closes the business. Keep this in mind when looking at your options.
- You can’t do this alone. Filing for bankruptcy as a business is a big deal, and you need help from an experienced lawyer. Work with someone who has done business bankruptcies before, and ask around for recommendations. When choosing a partner for your bankruptcy, you’ll need to find someone you trust to handle the future of your business.
Does your business need bankruptcy assistance?
Contact Reynolds & Gold. We can help you choose the solution that is best for your business.