COVID 19 and Your Small Business
We recently held two on-line meetups for small businesses to discuss the COVID-19 outbreak and its impact on small business, as well as to unpack some of the recently announced resources designed to help small businesses navigate the crisis.
We are going to continue these on a weekly basis- feel free to join us for the Eastern MA meetup on Thursdays at 4:00 pm, or the Western MA meetup on Fridays at 12:00 noon.
In the meantime, we wanted to share some of the challenges, resources and information we discussed. The situation is changing every day. We will continue to post updates as we can, but in the meantime we believe we can learn from each other as small business owners during this crisis.
COVD-19 Small Business Impact
Our first two meet up discussions included small business owners in the commercial cleaning, marketing, restaurant, insurance, childcare, music, health and wellness, in-home special needs services, and in-home elder care businesses. Some of these businesses are still enjoying high demand for their services and those who are completely shut down for the duration of the social distancing orders.
This crisis looks very different if you run an essential local retail business than if you operate a bar. Many of us fall somewhere in between those two points. We may be able to operate remotely, but demand for our services may be lower. There may be a high need for our products or services, but people are less able or willing to pay for them. Or you may not be able to deliver those services remotely, for example if you are a physical therapist, massage therapist, or chiropractor.
It is important to remember that there are not "winners" and "losers" on this spectrum. Those who still have revenue coming in because of high demand still have concerns and questions about keeping their team members safe and how to handle sick leave and other employment issues. In one way or another, all small businesses are impacted by COVID-19, and we all have questions about our business survival during this time.
Assessment of Coronavirus Relief Programs
Is the Paycheck Protection Program ("PPP") right for your business? What about the $10,000 economic injury disaster loan, or other loan programs offered by the Small Business Administration ("SBA")?
These resources for small business that have been recently rolled out by the federal government feel like welcome relief. And for many they will be. But it is important to reflect on the considerations and concerns many have about taking advantage of them.
First, with the exception of the PPP and the $10,000 loan that is really a grant, all of these programs involve incurring debt for your business. The terms are very favorable, but debt is debt. Whether this makes sense for your business depends in part on how you predict the long term recovery will go.
Our restaurant owner, for example, may have high confidence that when social distancing is lifted people will return to dining out. There may even be a peak in demand, as people who have been shut in and isolated for months enjoy the luxury of returning to normal social activity.
Our businesses who provide in-person health and wellness services, especially those who offer those services through corporate employers in the workplace, may have a different projection. It may take more time for consumers to feel comfortable receiving services that require actual hands-on treatments. Workplaces, moreover, may adapt to different models of delivering wellness training and assistance during the crisis.
These are just two examples, and there are likely as many other examples as there are types of businesses. The bottom line is that we need to each be doing our own forecasting, with as much information as is currently available to us, to be sure that taking on an additional debt burden is the right choice for our businesses.
Second, even the PPP carries some risk of debt obligation. At least 75% of the forgiven amounts must be spent on payroll. The forgiveness will also be reduced if you are unable to maintain or restore headcount during the relief period. This means if the situation gets worse instead of better and you have to lay off staff despite the loan, you may lose some forgiveness.
Also, the total amount that can be forgiven is eight weeks. This means if your business slowdown is likely to last more than eight weeks, you will either be borrowing money through the PPP or through one of the SBA loan programs.
Decisions About Layoffs or Furloughs for Staff
Another hot discussion topic were recent and pending changes to unemployment benefits. For your employees, their state benefits will now be enhanced by an additional $600 per week from federal funds. They can also collect partial unemployment if their hours are reduced, even if they do not lose their job entirely.
It is important for business owners to remember that anyone on their payroll is also entitled to new paid sick and family leave benefits under the Families First Coronavirus Response Act. This is another potential, if not probable, cost that should be factored into your decisions.
All of our participants who have employees were concerned about their team members and wanted to help them during this difficult time. Some had already implemented layoffs; others were considering whether to use PPP or other SBA funds to avoid layoffs or reduced hours. It is important to do the math here- your team members may be as well off or even better for the short term collecting unemployment, and may reap greater long term benefits from your business' financial stability after the crisis.
Unemployment Benefits for Sole Proprietors and Owner-Operators
One of the most fundamental changes in the federal COVID-19 relief packages is the expansion of unemployment benefits to include independent contractors and self-employed individuals.
This could be a lifeline for many business owners. As of this writing, however, Massachusetts has not implemented the change. As a result, a self-employed individual applying for unemployment will be screened out in the online application.
All indications are that this will be sorted out within the coming days. Many are attempting to get their applications in anyway through the telephonic application process to preserve their application date for the calculation of benefits. If you choose not to do this, you should watch the news for updates about Massachusetts' implementation.
Relief From Other Financial Obligations
Where increasing or maintaining revenue is largely out of your control, another place business owners are looking is how to control and reduce costs outside of payroll. Many banks, large insurance carriers, and other creditors are willing to discuss alternative payment arrangements during the crisis.
If you rent space for your business, you should also consider reaching out to your landlord to discuss deferral or forgiveness of certain monthly rent payments. If your landlord has business interruption insurance that covers this situation, they may be willing to be more flexible. Even if they do not have applicable insurance, most landlords would rather keep a good tenant through a temporary crisis than deal with a vacant space for the duration.
Finally, there is pending legislation in Massachusetts that would put a temporary moratorium on evictions and foreclosures. As of this writing, it is unclear whether the final bill will include commercial tenants or only residential tenants. If the bill passes and includes a moratorium o commercial evictions, you may be in a better position to negotiate with your landlord.
Remember, though, that whatever short term arrangement you reach with any creditor, eventually it is likely that you will eventually have to make up the difference. Like consideration of available loan products, it is important to be clear about what you think the medium to long term future looks like for your business.
This is a frightening time for everyone, and small business owners are no exception. We hope you can join us on our weekly video meetups and be part of the conversation and support. You should also feel free to reach out to slnlaw at (781) 784-2322 or by email at [email protected] if there is anything specific we can help you with.