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Eight Ways to Get the Most from Your COVID-19 SBA Loan

April 21, 2020 / by Mark Schanen

Small-Business-Owner-with-Paperwork-and-LaptopIf your business has been able to cut through the red tape and obtain COVID-19 funding through the Small Business Administration's (SBA's) Economic Injury Disaster Loan program or Paycheck Protection Program (PPP), you're one of the lucky ones.

However, you still must determine the best application of those funds to secure the long-term health of your business.

Your Loan Is a Means, not an End
The most important benefit of receiving emergency funding is that it buys you time to catch your breath and make clear-headed decisions about picking the right path forward. But it's important not to squander this opportunity. You need to act decisively — and soon.

To some extent, the nature of your business will dictate your plan. If you have a business deemed "nonessential," such as a movie theater, you can't do much beyond using the emergency funds to pay your employees (and your bills) and hoping that the virus subsides before your money runs out.

However, if your business is able to remain open, even if only in a modified form, you need to be more flexible and agile than ever before. Because the truth is, no one knows how long the current economic downturn will last or what the hoped-for recovery will look like.

You'll need contingency plans. Here are eight steps you can take today to get started.

  1. Implement cross-training. It's great that you've secured the funding to pay your employees. But what if some of your employees can't work because they've either contracted COVID-19 outright or must self-quarantine for 14 days due to exposure? To ensure your processes can endure a hit like that, you must cross-train your employees to handle all essential functions if necessary.

  2. Create a 13-week cash-flow model and stress test your revenue. If you're down, say, 30% for the next six months, what's your game plan? (And no, that's not a rhetorical question.

  3. Be proactive in seeking credit from your suppliers, vendors, landlord, etc. This step is especially important for nonessential businesses that have no choice but to remain shuttered for now. It can be difficult for business leaders who have always prided themselves on meeting their financial obligations. These extraordinary circumstances, though, call for a reality check. Most suppliers and lenders understand this is an extreme case and would rather be paid late than not at all. Bear in mind that there's not exactly a long line of people looking to rent your space right now, and the banks don't want to own your facility. That actually gives you a little leverage.

  4. If you’ve never taken credit cards, maybe it’s time to start. Like you, your customers could be starved for cash right now. If you include an upcharge for credit, you can get to the same margin as you might have had otherwise and still get paid on time. An upcharge for credit will also ensure your customers are interested in moving back to cash payments when this is over

  5. Use the unexpected downtime to focus on administrative processes. This includes all the things you've been putting off for the past several months because you were "too busy." Several of my clients are cleaning up their inventory so they'll be ready to run at full speed as we come out of this. Tracking inventory also ensures you'll have adequate supplies to meet whatever demand there is at the moment. The last thing you want right now is to be unable to fill an order in a timely manner. (As a bonus, taking inventory generally allows your people to remain more than six feet apart.)

  6. Take a closer look at your logistics. If you rely on just one supplier, your business would be extremely vulnerable should that supplier be disrupted or shut down altogether. Now is a good time to line up alternative suppliers just in case the need should arise.

  7. Anticipate shortages and price spikes in materials. The coronavirus crisis has rewritten the laws of supply and demand overnight. Many products (including toilet paper) have separate production facilities and supply chains for residential and commercial markets. Dairy products are a good example. Here in Wisconsin, commercial dairy farmers have had to dump milk due to the overstock that resulted when schools and restaurants shut down, and there weren't enough processing facilities available to redirect those dairy products for residential use. In other words, the demand for milk and cheese hasn't gone down; it's just shifted channels. When the crisis passes, this trend will reverse. Restaurants that have drawn down their supplies to zero will need to restock, creating a spike in demand that will drive prices up. This pattern will play out across industries, so be ready to adjust your pricing models accordingly.

  8. Keep detailed records. Thoroughly documenting your finances is always a good business practice, of course, but it's especially important right now due to the terms of whatever SBA assistance you've secured. Keep your receipts, tax records and whatever else you might need to bolster your case that you've met the terms of your loan. (If you'll be eligible for loan forgiveness after paying your employees for eight weeks under the PPP, for example, you want to be sure you can prove it by providing clean, detailed records.) In addition, you might be able to claim business interruption insurance. (Several lawsuits in the works regarding how insurance companies look at their exclusions bear watching.) Finally, when the delayed tax season arrives, some people may be able to claim one-time credits.
Be Ready for Anything No one knows how long our current social distancing measures will last or whether they'll be reintroduced in waves if we experience sporadic coronavirus outbreaks in the months and years ahead. Regardless, it's important that you keep your business limber so you can adapt to whatever comes next.

Topics: Milwaukee, Business Continuity

Mark Schanen

Written by Mark Schanen

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