SMB Expert Answers Questions on Managing a Small Business During COVID-19
Navigating business disruptions and financing options has always been an important part of running a company, but the COVID-19 pandemic has made it increasingly crucial and complex. Often, business owners have more questions than answers, and during this time of uncertainty, we're focusing on helping our readers understand the economy and federal aid.
Jean Murray holds an MBA and a PhD in business administration and management, and she has written about business law and taxes for The Balance since 2008. She has authored several books, taught college-level courses on the subjects, and run her own business. Here she answers some of the most common business questions we're getting right now:
Can I Still Apply for Small Business Assistance?
Jean Murray: There’s still time to get small business assistance with loans and tax credits. Here are some options:
The Paycheck Protection Program (PPP) is an SBA-guaranteed loan that you can use for quick funds for emergency needs like payroll, rent, and utilities. If you use at least 60% of the loan for payroll, the loan will be forgiven. This program began in March 2020, and it was extended with the American Rescue Plan Act of March 2021. The loan program accepted applications until May 31, 2021.
The Economic Injury Disaster Loan (EIDL) is intended to help with expenses that a company would have been able to cover had the public health emergency not occurred. The SBA is still accepting applications for the EIDL, with $15 billion in additional funds allocated, although advances are no longer available.
Two tax credits are also available. One credit can defray the cost of paying sick leave and family leave to employees who stay home because they are ill or caring for someone. This credit is available for payments after March 12, 2020, and has been extended through September 30, 2021.
The second is an employee-retention credit for paying employees if your business was ordered to suspend operations or had a significant decline in revenues compared to 2019. This tax credit was originally for payments to employees after March 12, 2020, and before January 1, 2021, but it's been extended for wages paid for the period of January 1, 2021, to December 31, 2021. You can take an advance on this credit by deferring your employment tax deposits.
You can’t take both the Employee Retention tax credit and the PPP loan. You can take the sick leave tax credit and the employee-retention credit, but not for the same wages.
What Assistance Is Right for My Business?
JM: You can get assistance during this crisis through loans and tax credits. Tax credits are available to every small business, while loans may not be.
Loans are more difficult to get, because you must apply and qualify, but banks and the SBA are working hard to speed up the process during this crisis. You must pay back loans unless you qualify for forgiveness. The Paycheck Protection Program loans, for example, can be forgiven if you can show that your business used at least 60% of the money for paying employees.
Tax credits work as incentives for small business spending. If you don’t have the money to pay employees, you can’t benefit from the tax credits. For example, you must spend money to pay sick leave to employees, and the usual process is to get a tax credit on your next tax return. During this crisis, the IRS has included options for quick advances on these tax credits.
Can I Still Get a PPP Loan If I already Laid Off Some Employees?
JM: Yes, if you rehire former employees.
The PPP was set up to give employers an incentive to rehire employees and maintain salary levels. You may not get full forgiveness if your full-time employee count declines or if salaries and wages decrease.
If I Applied Earlier Without Receiving a Loan, Do I Have to Reapply for Future Funds?
JM: It depends on the loan and your specific situation and loan status.
Check with your lender to find out your current status for reapplying and to see if you are eligible for any traditional SBA-based loan programs.
Can I Qualify for Assistance if I Already Have a Separate Small Business Loan?
JM: The SBA loan program uses existing lenders to qualify business borrowers.
It’s up to your lender and the SBA guidelines whether to qualify your business for additional loans.
SBA Express Bridge Loan Program ended on March 13, 2021.
The SBA is currently adding features to existing SBA loans to help small businesses. It is also giving other debt relief to current borrowers in the form of deferments.
Why Are Big Businesses Getting Small Business Loans?
JM: The PPP loan program limits include 500 employees (per facility) and a $10 million cap.
Franchise owners can apply for these loans. The SBA also requires businesses to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The SBA says it’s “unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith….”
Following public backlash, several large companies have returned SBA loans. The second round of PPP loans went out in smaller amounts, on average.
Am I Able to Refuse to Pay Rent?
JM: That’s between you and your landlord.
First, check your lease agreement to see if there is a hardship clause, and find out the penalties for non-payment. Then, have a conversation to see if there are ways you can work this out together. Remember that your landlord is having the same cash flow problems as you have.
What Are Some Ways I Can Quickly Save on Monthly Expenses?
JM: For most businesses, it’s the fixed expenses—the ones you must pay every month—that hurt.
Look at your expenses, and ask yourself, “Is this really essential?” Cutting down on nice-to-have, but not essential, fixed expenses is a good start.
Talk to creditors and lenders to see if you can get a break on making payments temporarily.
If you have products sitting on the shelf unsold, think of some creative ways to get them sold. Some restaurants, for example, started selling groceries to make up for the lack of customers.
I’m Having Trouble Securing a Loan. What Other Ways Can I Bring in Revenue?
JM: Some businesses are looking at crowdfunding.
Gofundme, for example, has set up a special appeal to help small businesses that are facing financial loss. You can create a site for free and share it with others on social media. It’s a good way for you to give your regular customers (and others!) a way to support your business during this difficult time.
I’ve Always Run a Brick-and-Mortar Store. How Can I Start Selling My Products Online?
JM: Many online services offer a quick website builder to get you started quickly.
You could also set up a Facebook page (different from a personal Facebook account). Start with a few products until you get your order and delivery process going. You can use your existing email contact list or social media to encourage potential customers to view your website.
Can My Business Be Liable if a Customer or Employee Gets the Coronavirus?
JM: Here are two tips for protecting employees and customers and reducing your potential liability:
- Find and follow the coronavirus regulations for your specific industry as they are announced by your state, county, and locality. If regulations differ, follow the one that is strictest—the one that offers employees and customers the maximum protection.
- Announce what you are doing. Talk to employees, give them a written document, and put up signs so customers know what to expect.
It’s always best to err on the side of caution and remember there’s no such thing as too much communication.