Small Business Coronavirus Survival Post Payroll Protection?
Almost as soon as banks began processing applications, the Small Business Administration ("SBA") announced that the federal Payroll Protection Program was out of money. Many small business owners had already gathered the paperwork and submitted an application. Others were still trying to understand the program and whether the assistance was right for their business.
Congress has now passed a second round of funding, along with a provision that carves out a certain amount of money to be lent through smaller banks. This offers some hope for small businesses that this time all of the funds will not be immediately taken by larger businesses with established banking relationships. It also offers some hope for businesses who had their applications submitted and in the queue before the funds ran out.
It is important to recognize, however, that these funds are not a sure thing for all small businesses. And we have seen how quickly the first round was used up. Even if you receive PPP funds, moreover, the period of loan forgiveness is only eight weeks of payroll and fixed expenses. For many, this will not be enough to fully cover the economic costs of the pandemic.
This means we all have to consider other strategies for surviving this period, so that we can come out at the end still able to provide the goods and services we provide.
Congress has now passed a second round of funding, along with a provision that carves out a certain amount of money to be lent through smaller banks. This offers some hope for small businesses that this time all of the funds will not be immediately taken by larger businesses with established banking relationships. It also offers some hope for businesses who had their applications submitted and in the queue before the funds ran out.
It is important to recognize, however, that these funds are not a sure thing for all small businesses. And we have seen how quickly the first round was used up. Even if you receive PPP funds, moreover, the period of loan forgiveness is only eight weeks of payroll and fixed expenses. For many, this will not be enough to fully cover the economic costs of the pandemic.
This means we all have to consider other strategies for surviving this period, so that we can come out at the end still able to provide the goods and services we provide.
Immediate Expense ReductionUnless you are in a business providing products or services that have been deemed essential, you are likely suffering an immediate economic shock from COVID 19. This is not limited to the extreme displacement of businesses forced to close entirely, such as bars, health and beauty providers, and others whose services require in-person interactions. Some businesses are still able to serve their clients remotely, but are seeing a steep decline in demand and/or ability of customers to access or pay for products or services.
With PPP funds uncertain, we all have to find other ways to stay viable during this period. Some of us may be able to "pivot" and find things we can offer that are in demand at this time. But we all need to start with the expense line, because no matter how creative we get, our revenues will be lower for some period of time. Payroll For most business owners, this is our single largest expense. It is also the most painful to cut. We all feel a huge responsibility to our team members. We also rely upon them to carry out the actual work of the business. Options for addressing your payroll expense include: Borrowing money to maintain headcount. The PPP loans may be uncertain, but there are still other SBA loan products you may be eligible for. If you are going to incur debt to get through this time, however, you should make sure you are clear on what you expect your revenues to look like several months down the line, so you aren't continuing to carry expenses you cannot realistically justify in the long term. Reducing staff. This is already happening for many businesses, especially those who have had to close their doors entirely. If this is a choice you have to make, understand that some of the COVID measures do protect your team members. For example, they can now apply immediately without waiting the previously required period. They also should be eligible for the additional $600 per week benefit for four months, on top of whatever their state benefit would have been. Reducing hours for staff. In Massachusetts, and under the COVID-19 unemployment measures, your staff can collect if they are "partially unemployed," so long as their hours are reduced by 1/3 or more. Further, though this has not yet been tested, it appears that they, too, will be eligible for the additional $600 per week. This means you can reduce your payroll expense without losing a staff member entirely, and without putting them in financial peril. Unemployment charges to the employer. Under the current rules, if you have staff who collect unemployment, that will affect the amount your business pays into unemployment in the future. There is currently legislation pending in Massachusetts that would exempt COVID related unemployment claims from counting against the rate you pay in the future. Even without this relief, generally the employer's financial cost for an unemployment claim is much less than actually continuing the wages or salary. Fixed Expenses/Rent Another big fixed expense for many small business owners is the monthly rent for your place of business. Most commercial leases do not provide much if any relief for the tenant in a situation like this. You still may be able to negotiate some forbearance, deferral, or temporary reduction with your landlord. The Massachusetts legislature recently passed a moratorium on evictions for both residential tenants and small business tenants. You should understand, however, that the restrictions on your commercial landlord only prevent them from going to court to evict you. If your commercial lease provides that they can regain possession without going to court, you may still be at risk for eviction if you can't pay your rent. Before attempting to negotiate with your landlord, it is a good idea to have a lawyer review your commercial lease and advise you about your rights and responsibilities. Other Bills and Accounts Some major insurance carriers and most banks and lenders have been offering some relief, at least in the form of partially deferred payments, for customers affected by COVID-19.In most cases, however, they are not going to reach out and volunteer- you will need to contact them and ask. |
Need Legal Advice About COVID 19 and Your Business?
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Managing Legal Risk During the COVID 19 Pandemic
This may not seem like an immediate priority. But with the rules changing from day to day and real life stresses on your business leading potentially to difficult choices, it is something you should be thinking about.
Employment Law Exposure
If you had to close down early, you likely already laid off some or all of your staff before the rules changed about sick time and family leave. If, however, you retained any employees on or after April 2, you are required to follow the new sick time and family medical leave provisions of the Families First Coronavirus Relief Act (“FFCRA”).
Details about these requirements area available here. In short, there are new employer responsibilities for paying for sick time for employees affected by COVID-19, as well as additional paid leave requirements under the FMLA. Most small business owners assume the FMLA does not apply to them because it used to only apply to large employers. Under the FFCRA, the emergency measures apply to all employers with 500 or fewer employers.
If an employee later decides that he or she should have been paid for time off during the pandemic, they may be able to bring a claim under the state and federal wage and hour laws. If they are successful in this, you could end up owing multiple damages and paying for their attorneys’ fees, on top of your own.
In addition, any time you are laying off some but not all of your workforce, you should be mindful of the federal and state employment discrimination laws. If someone who is being laid off or furloughed is a member of a protected class or has recently engaged in legally protected activity, it is a good idea to consult an attorney about managing the termination and layoff process to avoid liability.
Finally, some businesses are simply running out of money and cannot pay all of their workers. You need to be extremely careful about this, as any employee can assert a right to earned and unpaid wages under the Massachusetts Wage Act. Because they are allowed to bring these claims against an owner or officer personally, closing your business does not necessarily protect you from this liability.
How we can help: If you are considering a layoff or termination, you can start by reviewing our termination best practices. In addition, you can schedule a consultation with one of our employment lawyers to review your staffing situation and the decisions you would like to make to help you manage those decisions and minimize your legal risk. This review typically involves no more than 2-3 hours of attorney time, and can either be billed at our hourly rates or provided for a flat fee.
Civil Litigation Exposure
Any number of things can go wrong with the contractual agreements you have made with others. This is true even in the best of circumstances but even more so during a time of crisis and uncertainty. Maybe you have missed some payments under a vendor contract. Or received a shipment you can no longer use and need to return.
We can help you review your contracts with customers, vendors, or whoever else you are having an issue with. Most often a dispute can be resolved by negotiation and compromise, but it is important to understand your legal position first. We can also help you respond if you receive a demand letter, or provide a defense if you are actually served with a lawsuit.
Legal Review for New Business Models
Many businesses are looking at new product or service offerings to adapt to the changing environment. Sometimes these change your legal risk profile, either because of the kind of product or service you are offering, what you are asking your employees to do, or both. We can help you think through whether these adaptations change your legal risk, and how you can mitigate that risk.
Employment Law Exposure
If you had to close down early, you likely already laid off some or all of your staff before the rules changed about sick time and family leave. If, however, you retained any employees on or after April 2, you are required to follow the new sick time and family medical leave provisions of the Families First Coronavirus Relief Act (“FFCRA”).
Details about these requirements area available here. In short, there are new employer responsibilities for paying for sick time for employees affected by COVID-19, as well as additional paid leave requirements under the FMLA. Most small business owners assume the FMLA does not apply to them because it used to only apply to large employers. Under the FFCRA, the emergency measures apply to all employers with 500 or fewer employers.
If an employee later decides that he or she should have been paid for time off during the pandemic, they may be able to bring a claim under the state and federal wage and hour laws. If they are successful in this, you could end up owing multiple damages and paying for their attorneys’ fees, on top of your own.
In addition, any time you are laying off some but not all of your workforce, you should be mindful of the federal and state employment discrimination laws. If someone who is being laid off or furloughed is a member of a protected class or has recently engaged in legally protected activity, it is a good idea to consult an attorney about managing the termination and layoff process to avoid liability.
Finally, some businesses are simply running out of money and cannot pay all of their workers. You need to be extremely careful about this, as any employee can assert a right to earned and unpaid wages under the Massachusetts Wage Act. Because they are allowed to bring these claims against an owner or officer personally, closing your business does not necessarily protect you from this liability.
How we can help: If you are considering a layoff or termination, you can start by reviewing our termination best practices. In addition, you can schedule a consultation with one of our employment lawyers to review your staffing situation and the decisions you would like to make to help you manage those decisions and minimize your legal risk. This review typically involves no more than 2-3 hours of attorney time, and can either be billed at our hourly rates or provided for a flat fee.
Civil Litigation Exposure
Any number of things can go wrong with the contractual agreements you have made with others. This is true even in the best of circumstances but even more so during a time of crisis and uncertainty. Maybe you have missed some payments under a vendor contract. Or received a shipment you can no longer use and need to return.
We can help you review your contracts with customers, vendors, or whoever else you are having an issue with. Most often a dispute can be resolved by negotiation and compromise, but it is important to understand your legal position first. We can also help you respond if you receive a demand letter, or provide a defense if you are actually served with a lawsuit.
Legal Review for New Business Models
Many businesses are looking at new product or service offerings to adapt to the changing environment. Sometimes these change your legal risk profile, either because of the kind of product or service you are offering, what you are asking your employees to do, or both. We can help you think through whether these adaptations change your legal risk, and how you can mitigate that risk.
How Can We Help?
We can help answer your specific questions about managing this COVID-19 crisis. We can help you evaluate your obligations under the sick time laws or implement termination or layoff decisions lawfully. We can also review your leases and vendor contracts to help you negotiate payment accommodations during this time.
We routinely conduct consultations and meetings by phone or video-conference, so you can reach out without increasing your exposure to the virus. You can use the button below to schedule a call back from a member of our team, give us a call at 781-784-2322, or fill out our web form to let us know a little more about your situation.
We routinely conduct consultations and meetings by phone or video-conference, so you can reach out without increasing your exposure to the virus. You can use the button below to schedule a call back from a member of our team, give us a call at 781-784-2322, or fill out our web form to let us know a little more about your situation.
