6 in 10 small businesses struggle with cash flow regularly—a struggle the coronavirus has amplified. Thousands of businesses across the country have closed their doors temporarily due to quarantine orders, supply chain disruptions, or a lack of customers. But many of these small businesses still have to repay fixed debts on things like rent, utilities, and mortgages, among others.
If your cash flow has slowed and your debt-to-income ratio isn’t where it needs to be, alleviating those debts can seem overwhelming. Fortunately, when it comes to small business debt relief amid the coronavirus, you have some options.
1. Explore federal loans and grants
Many states and local governments are providing financial aid to small businesses impacted by the coronavirus. Visit your state government website to learn more about assistance in your area.
On March 27, the president signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act injects over $2 trillion into the U.S. economy through business loans, grants, tax credits, and more. Small business owners struggling to make ends meet can find relief through two CARES Act loan programs administered by the Small Business Administration (SBA).
The Paycheck Protection Program
Through the Paycheck Protection Program (PPP), created by the CARES Act, eligible small business owners can apply for low-interest loans to maintain payroll and pay fixed debts. The goal of this program is to help business owners keep employees on payroll amid the coronavirus and pay bills. PPP loans may be forgiven, in whole or in part, if certain criteria are met.
The Economic Injury Disaster Loan program
Economic Injury Disaster Loans, expanded by the CARES Act, provide small business owners with working capital loans up to $2 million. Borrowers may use loans to pay fixed debts and other costs rendered unmanageable due to the economic impact of the coronavirus. In addition to the loan, business owners can apply for an Economic Injury Disaster Loan emergency advance of up to $10,000 that they may not need to repay.
2. Look into other Small Business Administration debt relief programs
If you already have a loan provided by the Small Business Administration (SBA) currently, you may be eligible for debt relief. The SBA may cover loan payments, interest, and fees for six months on non-disaster-related SBA loans, 7(a) loans, 504 loans, and microloans.
Under its debt-relief options, the SBA will
- Automatically pay the principal, interest, and fees of current 7(a), 504, and microloans for six months.
- Automatically pay the principal, interest, and fees of new 7(a), 504, and microloans issued before September 27, 2020.
The SBA is also providing automatic deferments through December 31, 2020, for current SBA Serviced Disaster (Home and Business) Loans. To be eligible, your disaster loan must have been in “regular servicing” status on March 1, 2020. During this time, loan interest will continue to accrue. Business owners who want to defer payments will need to cancel any established recurring payments on the loan, including pre-authorized debit payments.
If you have questions about loan payments or deferrals, contact your lender or your SBA District Office directly.
3. Take advantage of tax extensions and credits
The federal tax filing and tax payment deadlines have been extended to July 15, 2020. Additionally, the CARES Act includes several tax relief provisions intended to help more business owners keep more of their money. The most notable of these provisions is the Employee Retention Credit. It’s a refundable tax credit equal to 50% of qualified wages—up to $10,000—paid after March 12, 2020, and before January 1, 2021. This tax credit reduces an employer’s required employment tax deposits. If an employer’s employment tax deposits are not sufficient to cover the credit, they may receive an advance payment from the IRS.
Another notable tax provision of the CARES Act is the Sick and Family Leave credit. The CARES Act extends and expands paid sick and family leave for employees who are unable to work due to the coronavirus. Eligible employers may receive a tax credit in the full amount of the required sick and family leave, plus related health plan expenses as well as the employer’s share of Medicare tax on the leave, between April 1and December 31, 2020.
Other CARES Act tax provisions include:
- Postponing estimated tax payments until October 15, 2020.
- Deferring payment of the employer’s share of the Social Security tax for employees. Employers may defer the first half until December 31, 2021, and the second until December 31, 2022.
- Modifying alternative minimum tax credits. If your business is due to receive alternative minimum tax credits at the end of 2020 or 2021, you may be able to claim those credits now.
- Immediate write-offs for qualified property improvement.
4. Consider crowdfunding
Crowdfunding using tools like GoFundMe is a simple and free way to get cash in your pocket. Eligible business owners can join GoFundMe’s Small Business Relief Initiative and apply for a matching grant from the Small Business Relief Fund. The fund helps small businesses affected by the coronavirus by empowering their communities to rally behind them. GoFundMe will issue $500 matching grants to eligible businesses that raise at least $500 on their platform.
5. Collect past-due invoices
Errant invoices can cost U.S. business owners thousands each year. If you invoice customers, follow up on past-due invoices and get that earned revenue back in your pocket. Here are five tips for collecting past-due invoices:
- Follow up. When invoices go unpaid, in many cases, either the invoice was incorrect or the customer never received it. Follow up on your unpaid invoices to find out why the customer hasn’t paid and rectify the issue.
- Add overdue fees. An overdue fee as low as 1% or 2% can incentivize customers to pay on time.
- Make sure your payment terms are clear. Your customers should know exactly how long they have to pay the invoice. Note that shorter payment terms can get you paid faster!
- Accept online payments. Paper invoices and checks add unnecessary time to the payment process. Allow customers to submit payments online to get money in your account faster. If you need cash now, consider mobile payment services, like Venmo, to get your late invoices paid.
- Incentivize early payments. Offer early payment discounts to incentivize customers to pay quickly or upfront.
6. Negotiate fixed debts
Landlords, suppliers, and service providers might be willing to be flexible with you during this difficult time. If you’re unable to pay your fixed debts, like rent, utilities, or mortgage payments, it doesn’t hurt to ask for discounts, payment deferrals, or extensions.
Several agencies have already moved to alleviate fixed debts:
- The Department of Education has suspended federal student loan payments until September 30, 2020 (many private student loan lenders are offering extended forbearance options and other benefits as well, contact your individual lender or servicer for more information).
- Homeowners with mortgages through Fannie Mae or Freddie Mac, who are unable to make their mortgage payments due to the impact of COVID-19, may be eligible for a mortgage forbearance plan or reduced or suspended mortgage payments for up to 12 months.
- Over 700 companies have signed the Keep Americans Connected Initiative. They pledge not to terminate utility services for at least two months because of a customer’s inability to pay.
7. Contact your insurance agent
Your business’s insurance policy may offer some financial relief due to the coronavirus.
8. Reach out to your lenders
If you’re unable to pay your existing loans and debts, contact your lenders right away. Ask if they can help you lower your interest rates, consolidate your debts, or restructure your repayment plan.
Many lenders are already waiving fees and deferring payments on personal loans for borrowers experiencing a loss of income. If you need help making monthly payments, call your lender to discuss your options.
9. Manage ongoing debts
Piling debt on top of debt isn’t going to get you anywhere. Look for ways to manage and reduce ongoing debt by cutting unnecessary costs and keeping your revenue streams open.
- Think outside the box: Look for alternative sales avenues to keep revenue coming in.
- Consider gift card sales: Selling gift cards is a great way to get cash today and provide services later.
- Take your business online: Diversify your income streams and set up your business for online sales.
- Reduce expenses: Discontinuing non-essential services can make a significant dent in your ongoing debt and help you bounce back to cash flow positive.
Continue searching for new and creative ways to move your inventory and keep your revenue stream flowing. Lean on your customers for support when you can and, as always, consult your accountant or financial advisor for information and advice.
10. File for bankruptcy
As a last resort, filing for Chapter 11 bankruptcy can reduce your business debt without shutting down your company. Filing for bankruptcy allows you to renegotiate the terms of your credit cards and unsecured loans.
QuickBooks Capital is licensed as Intuit Financing Inc. (NMLS # 1136148), a subsidiary of Intuit Inc. In California, loans are made or arranged under CFL Licensed #6054856.
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Intuit Financing Inc., (d/b/a QuickBooks Capital) is an authorized SBA Paycheck Protection Program Lender.
The resources described above are made available to businesses within the United States of America.
COVID-19 relief programs are evolving regularly. Please visit SBA.gov for the most up to date information.
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