Over the past few weeks, two significant pieces of legislature were signed into law to address the economic impact of COVID-19 on the American people: the Families First Coronavirus Response Act (“FFCRA”) and the Coronavirus Air, Relief and Economic Security Act (“CARES”). The CARES Act includes the launch of a $349 billion loan program called the Paycheck Protection Program (“PPP”), which provides forgivable loans to cover payroll for businesses and credits against the 2020 personal income tax for eligible individuals. To take advantage of these safety nets and weather the storm, small businesses need to understand these complex laws and comply with the eligibility requirements in order to tap into the potential relief they offer. At the same time, businesses must plan for recovery in the aftermath of this crisis by following stringent cash control measures and cultivating relationships with stakeholders – lenders, vendors, suppliers, customers and employees that allow for flexibility on payment obligations.
For starters, businesses need to take the necessary steps to stay afloat during the crisis until they receive financial relief or the situation improves. According to Maslow’s hierarchy of needs, two essential items for human survival are shelter and food. For a small business, “shelter” is usually a leased space with the survival of the business dependent on securing that space even while the business is closed. In the current circumstances, is very unlikely that any landlord could obtain possession of a space before mitigation measures are lifted. However, it is also prudent to communicate directly with the landlord in order to preserve the relationship and potentially obtain concessions like rent abatement.
For small businesses, “food” can be likened to cash as eventually, without cash, the small business will starve. To combat this, the CARES Act is providing potential alternative cash flow by funding PPP loans through commercial lenders, guaranteed by the SBA. These PPP loans may eventually be forgiven if proceeds are used to pay certain qualified expenses including payroll. Similarly, the SBA’s Economic Injury Disaster Loan Program is providing funding with the added benefit of a potential $10,000 advance, which may be treated as a grant. Both of these programs focus on the use of loan proceeds to pay employees while the mitigation measures for the pandemic are in effect. In a typical carrot and stick fashion, CARES and FFCRA provide an incentive to pay employees during the shut-down while providing certain legal minimum requirements for some payments to employees who take leave due to COVID-19.
Overall, small business survival depends on knowing and meeting the new minimum requirements to gain access to this funding while also maximizing the use of any cash obtained under these loan programs.
Taking advantage of governmental assistance available, such as the $10,000 advance under the Economic Injury Disaster Loan Program, and the PPP loan to obtain cash to cover overhead will be key to helping small businesses get back on their feet. As important is a plan to meet all of the requirements for forgiveness of the PPP debt. At the same time, eligible businesses should seek exemption from the FFCRA paid sick leave and FMLA requirements to preserve cash. Similarly, to the extent businesses are eligible, they should seek forgiveness or abatement of rent or mortgage payments under private programs or negotiated concessions as discussed earlier.
Conservation of cash will allow businesses to invest in fresh inventory, marketing, and employee reintegration when pandemic mitigation measures are lifted. Small business recovery success is directly dependent on utilizing the available government programs, negotiating concessions with contractual partners, fostering loyalty from customers and employees, and most importantly, prioritizing vigorous cash management.