Cash Flow Crisis — Securing your Business’s Financials

There’s an old saying in business – cash is king. And in times of distress, this could not be truer. After the financial crisis hit in 2008, business owners quickly found themselves struggling to meet the day-to-day cash demands of operating their businesses. According to a study by the JPMorgan Chase Institute, on average, companies with fewer than 500 employees have less than a month of cash reserves. Smaller main street-type businesses often have just a couple of weeks’ worth of cash to keep running.

As the economic impact of COVID-19 continues to develop, business owners will undoubtedly begin to feel the pressure on their cash reserves.  Many will certainly find themselves faced with difficult decisions. Can I pay my suppliers? Can I make payroll this week? To provide relief to business owners impacted by the continued economic slowdown, Congress passed legislation making $1 billion available to the SBA (Small Business Administration) to grant low-interest loans to small businesses, small agricultural cooperatives, and nonprofits to help make up their temporary loss of revenue as a result of the COVID-19 pandemic. Additionally, the administration has asked for $50 billion in loans from the SBA to help businesses stay afloat during the impending economic slowdown.

Unlike usual SBA loan guarantees secured through a bank, these specific disaster loans will come directly from the SBA itself. Businesses will submit a loan application online and provide certain documentation to prove their economic injury. The loans may be used to pay fixed debts, payroll, accounts payable and other bills that cannot be paid because of the impact of the pandemic, according to the SBA.

While government relief is welcome and may provide some relief. Now, there are other options you should consider.

1. Contact your lenders – Be proactive. Call your financial institution and explore refinancing, deferring payments, or other tools that may be relevant to your situation.
2. Negotiate terms with your suppliers – Best advice – keep close contact with your vendors. If your business is suffering a shortfall of cash and you have a strong relationship with a main supplier, you can consider negotiating your short-term trade payable into a note payable.
3. Small Business Administration and other government programs – As discussed above, federal and state programs are working to provide continued relief to business owners impacted by COVID-19. Businesses with credit available elsewhere are not eligible, the agency said this week. The interest rate will be 3.75% for small businesses without credit available and 2.75% for nonprofits for a maximum term of 30 years.
4. Non-bank lenders – To be clear, we are not talking about the Tony Soprano-like guy on the corner. Following the 2008 financial crisis, the level of private debt has grown tremendously creating alternative solutions for those who may not qualify for traditional loans or need access to larger amounts of capital.

While it is never easy to watch your business struggle, with some preparation and a plan, these turbulent times, too, shall pass.

For now, here are several resources to help keep you informed:

• Small Business Administration – https://disasterloan.sba.gov/ela/Information/Index
• State of Oregon – https://www.oregon4biz.com/Coronavirus-Information/
• State of Washington – https://www.governor.wa.gov/issues/issues/covid-19-resources/covid-19-resources-businesses-and-workers
• State of California – https://business.ca.gov/coronavirus-2019/
• Other – https://www.inc.com/kevin-j-ryan/coronavirus-resource-list-for-businesses.html