*Updated as of 4/27/2020*
COVID-19 Small Business Response Checklist
Small Business Owners are being stretched and challenged by the recent COVID-19 crisis. In addition to the health and operational changes, Small Business Owners are facing unprecedented financial pressures. Meanwhile, governmental programs and new laws are being announced daily – in an attempt to help. This can be overwhelming for a Small Business Owner. Below are some ideas for Small Business Owners to consider and hopefully help to manage through this crisis.
We have organized these ideas into 4 categories:
A. Manage and Plan Cashflow
B. Debt Options
C. Employment Ideas
D. Tax Law Changes
A. Manage and Plan Cashflow
- Create a Daily / Weekly / Monthly Cashflow Worksheet: Project your cash account on a daily and weekly basis using a cash-flow model like this one HERE. A good cash projection model will identify when inflows and outflows are expected and project your cash balance on a daily basis. This will help identify when a cash shortfall may occur.
- Predict Revenues / Collections: Your Cashflow model should include known revenue and collections or you can use historical amounts and then “handicap” them for expected reductions. For example, you might estimate using same the day last year or last month and then reduce by 50% or 75% if collections are down compared to normal.
- Business Disruption Insurance: Look at your business insurance policies to see if you’ve purchased Business Disruption Insurance. If your business is restricted due to a government mandate, certain business insurance policies can provide disruption coverage for lost revenues.
- Prioritize / Defer Payments: After you’ve input your known outflows and you can see that you’re going to hit a cash crunch – begin looking at each bill that’s due and determine if it can be deferred. Here are some of the most common bills that might be deferred in this current crisis.
- Essential Vendors: Key vendors to your business may allow extended terms at this time. Many larger companies want to see you survive and therefore could extend your payment terms. This might mean giving up early payment discounts or incurring late payment fees. But, if cash has become tight, this may be necessary to meet other demands.
- Unessential Costs: This is time to question everything. Review your bank account and credit card statements for recurring charges such as subscriptions or memberships that could be suspended. Instruct employees to discontinue all non-essential spending. In extreme cases, consider postponing payment of bills for services that you can live without (should they cancel your service).
- Insurance Payments: If you’ve traditionally paid your insurance bill semi-annually or quarterly, you might contact your insurance company and see if you can move to monthly billing to reduce the next invoice amount. This might create a service fee that you’ve been avoiding, but the goal is deferral at this point – even with a slight long-term cost.
- Rent / Mortgage: In this crisis some banks and landlords are offering flexible or deferral terms. Ask if they can reduce or defer rent / mortgage payments. Read your lease to determine the date when penalties or late fees begin. For example, your lease may not charge late fees until after the 10th of the month. You might also contact your landlord and ask if you can reduce your rent to half-payments (pay 50% on the 1st and 50% on the 15th).
- Existing Debt Payments: As noted above, in this crisis some banks have already established a COVID-19 policy for payment flexibility. Check with your bank first and see what’s available. If they don’t have a set policy, inquire if you may be allowed to skip a couple payments or convert to interest only for a few months without any penalties.
- Tax Payments: (See the tax section below.) Normally, failing to make your payroll or sales tax payments can result in huge penalties and immediate liens and business closures. (Normally this is the last expense you want to skip). However, in this crisis some rules have changed for delaying tax payments. See the information below and stay abreast of new changes that are coming out regularly.
- Employee Wages: (See additional employment information below.) Employee Wages are often one of the largest expenses of a business. At this time the goal of the Government is to keep employees in place in order to a) ensure they have some form of income to help manage their personal costs and b) reduce the impact of rehiring once impacted businesses and industries can start to increase operations again. This will also allow you to maintain your trained and knowledgeable workforce, however, it is also usually the largest costs being incurred by businesses. The Payroll Protection Program as part of the CARES Act (See below) was intended to allow employers to re-hire employees and allow the loan to become forgivable if certain payroll requirements were met. Prior to funding of the PPP loan, many employers would implement lay-offs or furloughs to allow employees to claim unemployment, or consider reduced workload and salaries across the board to retain all employees (or many more) but significantly lower payroll costs in the short term.
- Credit Cards: You can always pay the minimum payment and allow the balance to build. You might also call and request an increase of your credit limit to pay vendors and other essential business expenses. Credit card companies are also offering checks that can be used to pay other bills. Currently there are a number of 0% cards being offered for personal use and those may mitigate high interest in the short term but note that the longer-term interest rate on these cards and advances is sometimes much higher than other borrowing. So, consider these options carefully.
B. Debt Options
After you’ve created your cashflow forecast and you’ve reduced or deferred everything you can, you may still have a projected deficit (or an uncomfortably low balance). Borrowing may be the next step. Here are some ideas for seeking financing.
- Review Loan Covenants: Review existing loan documents and covenants to determine if any of these cashflow planning steps or your current downturn in revenues could create a technical default or violate a covenant. If so, it’s wise to contact your lender and request a covenant waiver – which may be easier than normal to obtain in this crisis.
- Existing Debt / Obligations: (See Prioritization steps above) As noted, some lenders are allowing payment deferral or payments of interest-only. In addition, if you’ve been able to reduce the principal balance of an existing loan substantially in the past, your lender may be willing to advance against that original collateral. Asking a lender to extend new funds on existing collateral might be easier and quicker than applying for a new loan.
- Business Credit Lines: A line of credit from your existing bank might be the quickest and easiest option. In this crisis, this is a double-edged-sword: On one hand, banks are encouraged and flush with cash to lend. But they are being bombarded with new requests. For this reason, seeking a line from a bank that you already have a relationship is likely your quickest option.
- Home Equity Line: If you have a personal home equity line, you might consider using this to inject cash into your business. Home equity lines typically have a lower interest rate compared to other business loan options and normally only require interest-only payments. Some business owners don’t want to use this because the debt is tied to your personal residence. But many of the business loan options discussed here will typically require a lien on that same residence or a personal guarantee as well.
- Credit Cards: As discussed above, existing credit cards may be the quickest and easiest way to access funding. Call your current credit card company and request an increase to your line. Applying for new credit cards may take time and will normally have lower limits than an existing card could offer but may come with better introductory rates and benefits.
- New Debt Options: Applying for a new loan, with a new bank, may be slower and could result in a lower credit amount. For that reason, sticking with a bank you already know may be preferred in a crisis. Consider assets you have that could be used as collateral for a new term loan (vehicles that you’ve paid off already, assets you may have purchased for cash in the past.)
- SBA Loan Options: The Small Business Administration (SBA) is a federal government agency that offers both direct loans as well as guarantees for banks to make loans to small businesses. There are a couple loan programs specific to a crisis like this one:
- SBA Disaster Loan: Since Colorado has declared a State of Emergency, the SBA Disaster loan program is available to small businesses in Colorado. These are loans made directly by the SBA and applications can be made by going to this link: https://www.sba.gov/funding-programs/disaster-assistance . PLEASE NOTE the SBA is reporting extreme volumes of applications, so this website link may be delayed or fail to load.
- New Payroll Protection Program (PPP) The CARES Act has established a new SBA loan available to small business and self-employed individuals. There is much to read about this program from lenders and on the BiggsKofford COVID-19 Webpage.
- Paypal and Other Merchant Loans: There are small funding options open to businesses through companies such as Paypal and merchant processors. These typically range from $10,000 – $250,000 and are fast to apply for. However, they are usually tied to your credit rating and your processing volume. They work as an advance against future sales and are repaid by taking a % of processed transactions over time so they do directly impact your future revenue until paid off. They can also have high interest rates.
- Factoring / Internet Loan Options: There are many lending options available online through lending sources such as Kabbage, Lending Tree, Biz2Credit, etc. These services typically connect individual investors/lenders with businesses. Lending terms can vary greatly, but for quick and short-term lending the effective cost of this money can be significant. For that reason, these are often lenders of last resort. For a list and comparison of these lending sources, look here: fundinghero.com
C. Employment Actions
- Layoffs / Furlough – Unemployment: The most common and immediate action that can be taken to eliminate your employee cost, is through a layoff. Employees would be entitled to seek unemployment benefits. But, if your layoff is intended to be short-term, there is no guarantee these employees will be available to hire back. And this will kick-off other HR considerations like COBRA coverage, wrongful termination claims, severance agreements, etc. We all want to remain optimistic that this crisis is a short-term one, so employers may be looking for other alternatives.
- Colorado Work Share Program: For an alternative to a complete lay-off, consider an option offered by the Colorado Department of Labor. An employer may reduce the work schedule of 2 or more employees by 10-40% and allow the employees to seek unemployment benefits to supplement their income. Learn more at: colorado.gov/pacific/cdle/layoffassistance.
- New Sick-Pay / Family Leave Plan: The “Families First Coronavirus Response Act” requires employers with less than 500 employees to offer 80 hours (2 weeks) of sick pay and up to 8 additional weeks of family leave for qualifying employees. Employers with less than 50 employees may be exempted based on facts and circumstances – which haven’t been made clear yet. The good news is the federal government offers a 100% credit for the sick wages paid (up to certain limits) and a payroll tax credit for the family leave wages. Both credits are to be reimbursed to the employer through payroll taxes. Because this is a new law and credit process, we will learn more over time about details, exceptions and process for collecting these credits. Please watch for news articles and updates from service providers about this new law, including BiggsKofford’s email news.
- Voluntary Pay Deferral / Workload Reduction: Some employers are successful approaching employees and asking for voluntary workload reductions or salary deferrals. Groups of employees may choose to each cut their hours, rather than having some colleagues laid-off and others retained.
- Employer Preparedness Toolkit: ADP has created a new COVID-19 specific website with tools, information and recommendations for payroll and employment changes – including additional information on the subjects above. See this website: https://explore.adp.com/covid-19-resources.
D. Tax Law Changes
- 2019 Filing Deadline: The April 15 filing deadline has been extended to July 15. This means you are no longer required to file your taxes, or even prepare an extension until July 15.
- 2019 Balance Due Extension: Any balance due for 2019 taxes may be paid as late as July 15 (not April 15) without any penalties and interest being charged.
- 2020 Estimated Payments: The 1st and 2nd Quarter Estimated tax payment for 2020 that would be normally due on April 15 or June 15 have been extended to July 15. (The IRS has announced that ANY income tax payment deadline that would normally be due between April 15 and July 15 is now delayed to July 15.).
- Payroll Taxes: Various proposals have been made to either defer or allow for a “payroll tax holiday”. The “Family First” act noted above, does include a payroll tax credit for any family leave wages paid by an employer. And, the 100% wage reimbursement will reduce an employer’s payroll taxes, as the credit is claimed through payroll taxes. The CARES Act has allowed employers to defer payroll taxes through December 31, 2020. You can read about this option in our April 20, 2020 article HERE.
- Colorado Income Taxes: Colorado will follow the IRS rules for a 90-day extension of the filing deadline and payment deadlines for taxes and payments otherwise due on April 15.