Help is Available
Well, folks, since our last article, I sure didn’t think this one was going to be about a crazy virus that has caused a global pandemic, shuttering the entire planet and creating an economic disaster for us here in the US. But, here we are nonetheless. I hope all of you out there in Sign Land are doing well and are weathering this storm as best you can. With good fortune, by the time you are reading this, we will have conquered this foe and will be on the way to returning to our normal lives. This event is surely going to change the world: how we interact with other humans, how we travel, how we use technology and social media, and definitely how we do business.
The US economy had been zooming right along the past few years, and a great many had been enjoying that ride. But that all changed a few months ago, as the COVID-19 pandemic began to sweep the globe. Self-quarantine, social distancing and essential business are all new concepts, and have become the “new normal” of how we live our lives.
One aspect of the new normal involves businesses all over the country flocking to the Small Business Administration (SBA) for help. And seeing that I have personally been in contact with the SBA on a daily basis for the past five months trying to purchase our new building, partner Rick Ream and I’ve had a front row seat for how they are approaching the staggering task of keeping American small business, in business. Here are some facts I know:
According to my source there, the SBA has an annual budget of $31 billion. That’s a ton of scratch! But this money has to be spread among businesses in all 50 states, so it cannot be squandered, which is why the SBA lending rules are so stringent.
Typically, it takes the nationwide network of SBA lenders all 12 months to loan that money out to small businesses. It’s a large task, accompanied by massive stacks of forms, applications and background checks. Personal guarantees and collateral are required for approvals. But in late March, the government flooded the SBA coffers with an additional $349 billion dollars with instructions to deliver it all to small business owners by the end of June! What? How are they going to get that done?
Well, first, the personal guarantees and collateral requirements are out the window. And the 28-page loan applications have been cut to four, to streamline the process. Of course, with such a rush of speed for an unprecedented new process, things are slow out of the gate and banks are trying to keep up. (The SBA technically doesn’t lend you the money directly; a bank has to be the intermediary.)
LOAN OR GIFT?
One pathway for this money is the Paycheck Protection Program, under the CARES Act, which allows small businesses (under 500 employees) to “borrow” up to 2.5 times their monthly payroll. And if that money is used to do nothing other than to maintain payroll, and pay rent and utilities during the pandemic, then all will be forgiven, and the “loan” turns into a glorious gift that the government (and not business owners) will pay back to the banks! Now then, there are parameters to prove what you used the money for; it’s not like you can go buy a new Ferrari with it.
The second pathway of the CARES Act is one I find particularly interesting: Nobody who has a current SBA loan will have to make a payment on those loans for the next six months!
This applies to 7(a) loans, typically used for equipment financing, as well as 504 loans, used for real-estate purchases. This is an automatic process, too! No applications to fill out, nothing... If you are on an auto-draft for your payments, the SBA/your bank will not draft your account for six months! And this is not a deferment of payments, added back to your loan at a future date. The SBA will actually make your payments for you over this six-month period.
Space here doesn’t allow me to go into all of the programs being rolled out, but these two are above and beyond anything the government may have ever done before, and personally, I think are a game-changer for all of us small business owners, and our employees. Please look into these programs, use them to keep your employees paid and keep your business afloat during these crazy times.
Stay safe, my friends! I hope to be able to shake your hands again soon.