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Financing and Loan Options to Weather Covid-19 Crisis

moneyAs we know there is so much information out there right now.  If you are looking for different ways to find funding during the Covid-19 Pandemic, please read below for a helpful article written by Sally Anne Hughes of Hughes Klaiber.

 

Over the past few days, we have been gathering information on financing and loan sources to help companies weather the COVID-19 crisis. Here are some general thoughts and recommendations. We will add to this as more information becomes available.

1. Banks.

Unlike 2008, banks currently have strong balance sheets. Therefore they are potentially well positioned to help businesses with liquidity issues.

  • First step, call your existing banks and lenders.  Your existing banker may be the best option for access to additional credit, to extend or reinstate a line of credit. If you have not already done so, call your banker.
  • If you have any existing debt, and your business has been impacted by COVID-19, you may be able to defer payments. Most major banks are offering deferrals on debt for 90 days. On March 21, Governor Cuomo issued an Executive Order stating that banks (those subject to the jurisdiction of the NYS Department of Financial Services) must grant a forbearance to any person or business facing financial hardship as a result of the COVID-19 pandemic for 90 days. If they do not, it would be deemed “an unsafe and unsound business practice.”
  • The bank is going to want a story as to how you plan to come out of this. Put together a plan now.
  • Here are sites for various banks on the Coronavirus response, numbers to call, etc.:

2. State, local and community loan programs.

  • NYC has a range of programs: click here
  • Here is an option for certain NYC neighborhoods:  click here
  • There is also a program for business in Philadelphia: click here
  • Los Angeles micro loan program: click here

3. Small Business Administration (SBA).

  • In normal times, SBA loans (including 7(a) and 504 loans) are issued by banks, and the loans are guaranteed by the SBA if the borrower defaults.
  • An SBA disaster loan is issued directly by the SBA, for counties that are declared disaster zones, which includes all of NYC and most surrounding areas. Here is the site for the SBA disaster loan application. https://disasterloan.sba.gov/ela/  You may want to access the site during off-off hours, it has been slow and down for maintenance. Rates are 3.75%. Disaster loans are capped at $2 million. They cannot be used to acquire fixed assets or to pay back shareholder loans. TBD how long a disaster loan will take to get approved. The SBA is supposedly rolling out a new processing system with a large mortgage processor on Monday, March 30, that will take application time down to 3-5 days. The SBA is also providing daily webinars on how to apply. Check here.
  • The relief package passed by the Senate on March 25 2020), the CARES Act, includes major modifications to the 7(a) loan program, designed to help small businesses meet their ongoing expenses and keep employees on payroll. The portion of the loan that is used for payroll and debt obligations may be forgiven, subject to reductions if number of employees is reduced compared to last year. Funds used for other purposes must be repaid.
  • The maximum amount available under this program is the lesser of a) 2.5x the average monthly payroll total; or b) $10 million.
  • This legislation still needs to go to the House and be signed by the President.
  • TBD what provisions will be included to support business owners who have a previously issued SBA loan.
  • There is a provision in the act that provides payment deferment relief on 7(a) loans for a period of not more than one year. TBD how this will play out.
  • This program will administered through bank lenders, not directly through the SBA. Another reason to call your banker.
  • Every impacted business owner who thinks they may need to access this program can prepare now by setting up a data room with all of the typical information a bank will need, so that you can quickly provide it to your banker when the program is up and running. Information to pull together should include a description of how their business has been impacted in terms of revenues, current cash position, detail of costs you have been able to or are trying to cut (rent included), detailed schedule of the monthly expenses of the business, payroll information, plus three years business tax returns, 12/31/2019 year end financials, business debt schedule, entity documents, and copies of leases.
  • You may not be able to get BOTH a disaster loan and a 7(a) loan if they are both to be used for payroll purposes.

4. Facebook Small Business Grants Program: Facebook is offering $100 million in cash grants and ad credits to businesses experiencing disruptions as a result of COVID-19. The application is not yet live, but you can sign up to receive information here.

5. Factoring. Several factor companies are currently providing accounts receivable and purchase order financing. Although fees will vary, the cost associated with factoring is likely to be significantly higher than most other type of financing. However, you may be able to get financing in 5-7 days, with less paperwork. Find out if you can pick and choose which accounts to sell and which invoices to finance, and if there are minimum size requirements.

Please contact us at info@hughesklaiber.com for any help, updates and introductions to lenders we know and have worked with. Please bear in mind that this information is evolving. Please check with us or your banker for any recent updates and changes to this information.