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Exploring Funding Options Beyond SBA COVID-19 Programs

by Danielle Kane | Apr 24, 2020 10:25:13 AM

During
these uncertain times, many business owners are putting in late nights to
figure out how to keep cashflow consistent. COVID-19 has led to an economic
crisis of disproportionate levels, forcing many small business owners to look
at loan and credit options in order to stay open.

“The
people I’m talking to are up until midnight stressing about paying bills and
what to do next,” said Suzie Berget White, business development director of Bozeman-based
Prospera. “I’m encouraging business
owners to start thinking about their Plan B.”

For
many businesses, their first line of defense was qualifying for and receiving a
Small Business Administration Loan, either a PPP (Paycheck Protection Plan) loan
or an EIDL (Economic Injury Disaster Loan). However, the first round of funding
for these programs ran out on April 16, leaving many scrambling for an influx
of cash.

“So
far, those who have received their PPP loan are not even getting the full
amount they asked for,” White said. “But it’s the only program that has even
come through. Most people have not gotten the advance they applied or were
approved for through the EIDL loans.”

With a
second stimulus package coming down the pike, as of April 22, small business
owners can anticipate an additional $370 billion in available loans and grants
for the SBA – $310 billion for the paycheck protection program, $50 billion for
disaster recovery loans and $10 billion for grants.

At
Better Business Bureau Northwest + Pacific, we know this will provide relief
for thousands more business owners, but there will still be those who don’t
qualify or act in time to receive the funds.

So,
what are the other options?

White
suggests opening up a line of credit backed by collateral. “Make sure you open
the right line, though,” she said. “Make sure you have a relationship with the
banker, it’s a term loan and that you’re having honest conversations around how
you’ll pay it back.”

If
you’re a business owner considering a line of credit vs. a credit card, White
offered this: “The line of credit gives you a stabilized low interest rate,
versus a credit card, which may seem sexy at first with all the points, but you
cannot get ahead of those interest rates.”

Even
on the credit cards you already have open, now is not the time to charge
everything to credit and build up debt. Instead, business owners would be wise
to pay for as much as they can via debit or check.

Another
option is looking at standard SBA loans, unrelated to coronavirus funding. It’s
critical to note, however, that these loans are very different and not as
generous as the SBA programs for COVID-19. They will give business owners
access to money they need, but not as fast.

“These
loans take at least two months, maybe longer right now, to work through the
process,” White said. “The applications can be onerous and long and you need a
personal guarantee or collateral to put up.”

One thing BBB cautions business owners to think carefully about is payday loans. Annual interest rates for payday loans can get up to 400%, making them quite risky for borrowers who might struggle to pay back the loan on time.

BBB
Director of Communications in Halifax points out that payday loans are sort of
like a treadmill. He writes, “Far too many people
resorting to this borrowing options are only pulling forward money from their
next paycheck, creating another shortfall, at which point they borrow again.
They’re running in place, not getting anywhere.”

While there are sometimes circumstances for payday loans (i.e. a short-term need for cash when there is a larger influx of cash coming soon), BBB warns business owners to understand that applying for these loans leaves them open to:

  • Aggressive
    collection tactics;
  • Skyrocketing
    interest rates;
  • Potential
    for fraud, as some lenders are not legitimate and will ask for banking
    information or charge up-front fees to scam people. 

So, it
is critical that during this crisis when many find themselves in desperate
times, they don’t resort to desperate measures that will haunt them later on.

“People
are making giant financial decisions right now about their life without creating
cashflow documents,” White said. She recommends this as the first thing
business owners do to get a clear picture of how much money they need and what
they can afford down the line. “Everybody knows they need money, but don’t know
exactly how much. You need to have a grip on your financials before deciding on
Plan B.”

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