Cash Flow and Coronavirus

As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.

The coronavirus is here and it’s here to stay. Small businesses are expected to be hit hard by the effects of lockdowns, social distancing, and forced closures. Even the best-laid plans for optimized cash flow will suffer from an economic slowdown through temporary losses of revenue, disrupted supply chains, and reduced customer demand.

What can small business owners do to get through this crisis and manage their cash flow problems? There are a number of strategies and financing options that small business owners can leverage to get the cash they need to keep paying their bills.

Disaster Assistance Loans

The US Small Business Administration (SBA) recently announced that its disaster assistance loan program will be available to small businesses affected by the coronavirus pandemic. This program provides low-interest loans of up to $2 million to businesses in declared disaster areas who have felt “substantial economic injury” due to the COVID-19 crisis.

The SBA defines substantial economic injury as a business being “unable to meet its obligations and to pay its ordinary and necessary operating expenses.”

These loans will charge a 3.75% interest rate to eligible small businesses and can be used to deal with payroll, pay off debts, and pay other bills that they are unable to pay due to the crisis.

There are two important things to note concerning SBA disaster loans:

  • These loans are only available to businesses for which it is their last option. If small business owners have access to credit elsewhere, they will not be eligible for these loans.
  • Our experts at Biz2Credit advise that it can take anywhere from 4 weeks to 4 months for businesses to actually receive cash through these programs.

You can read more about the Trump administration’s plans for bolstering SBA disaster loans in response to COVID-19 in our recent article.

Take Advantage of State and Local COVID-19 Programs

Many state governments and local municipalities are taking steps to help small businesses in their communities fight the economic impact of coronavirus.

For example, Mayor Bill de Blasio of New York City announced that the city government would be providing financial support to small business owners in the form of loans and grants including:

  • Zero-interest loans of up to $75,000 for small businesses with less than 100 employees who had seen a 25% reduction in revenues
  • Grants for small businesses with less than 5 employees to cover 40% of payroll for two months

The coronavirus outbreak has hit small businesses differently across the country, and thus local institutions have developed different plans to combat its effects. Many plans are still being hammered out and aren’t yet active. Contact your governor’s office, your local Chamber of Commerce, and your local SBA office to see what resources are or could be available

Temporary Debt Relief: Contact Your Credit Card Company and Bank

Big financial institutions are doing their part in helping small businesses get through this crisis. Capital One, a large credit card company, recently put out a statement saying that they are willing to work with their customers who are experiencing “financial difficulties”. Other credit card companies have followed suit with plans for expanded credit lines and collection forbearance.

CitiBank recently put out a statement detailing resources available to affected customers including eligibility for waiving monthly service fees for business accounts, waived fees for early certificate of deposit (CD) withdrawal, and after-hours customer support.

Reach out to your credit card provider and business banking partner to see what resources could be available to you.

Secure Traditional Forms of Small Business Financing

You may find that even with the program described above, you still need more help to manage the crisis. It may also be the case that you need cash FAST, and you can’t wait for relatively slow federal and state bureaucracies to get you the money you need.

Get a Small Business Loan

Traditional small business loans can be an excellent tool to fill the gap caused by COVID-19. Interest rates are as low as they’ve ever been, so taking out a loan now could be relatively cheap. Lenders understand how this crisis is affecting small business owners and will be happy to provide funding at a low rate to otherwise financially healthy small businesses.

If you find yourself having a hard time securing credit, take advantage of the SBA’s 7(a) loan-guarantee program. Lawmaker’s on Capitol Hill are advancing legislation meant to boost the ability of the SBA and their partnered lenders to get inexpensive capital into the hands of affected small businesses.

Open a Small Business Line of Credit

Lines of credit are a great way to get quick working capital without taking on a huge amount of debt with regular interest payments. A small business line of credit is an excellent way to gain access to stop-gap cash flow that you can use to confront this crisis. We’ve written a great guide to help you secure a line of credit ASAP.

Merchant Cash Advance for Quick Funding

A merchant cash advance is a way to access cash that you would otherwise make in the future. This crisis is almost certainly going to disrupt your regular cash flows, and using a merchant cash advance can help you to address the short-term cash flows resulting from COVID-19

It’s important to note that merchant cash advances come at a higher cost of capital compared to regular small business loans, but you can often get access to cash much faster using them.

Crises often bring out the best in people, and this is especially true of small business owners. Savvy small business owners can use their experience and relationships to innovate their way through this crisis.

Getting Creative: Alternative Funding Options

Crises often bring out the best in people, and this is especially true of small business owners. Savvy small business owners can use their experience and relationships to innovate their way through this crisis.

Forward Cash Flow: Gift Cards and IOUs

Many businesses have a powerful tool for forwarding cash flow already: gift cards! From sports bars to mom-and-pop clothing boutiques, small business owners have long used gift cards to encourage customer loyalty and attract new consumers.

Ramping up the sale of gift cards can get the cash you need now with the understanding that you will be able to fulfill those debts later when business picks back up. Reach out to your customer base, run a small advertising campaign, and reach out to your community. You may be surprised to find willing and ready customers who are looking to help small business owners through this cash crunch.

Taking Advantage of Business Credit Card Rewards

Cashback and other rewards from credit cards can be an unlikely but powerful source of alternative funding. If you already use business credit cards, check your reward balances to see what and where they can go.

You can also apply for credit cards with large sign-on bonuses and start charging regular business expenses on them to build up large sums of cashback. There are plenty of examples of savvy entrepreneurs using this technique. Another option is to apply for credit cards with generous 0% interest introductory periods.

Fair warning: Credit card debt can be extremely expensive due to high-interest rates. If you do choose to leverage credit card rewards, take extra care to make sure that you will be able to pay off your balances before interest payments accrue.

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