With jobless claims hitting record highs, you might finally need to figure out how to ask for help.
A portion of the Coronavirus Aid, Relief, and Economic Security (CARES) Act allocates $350 billion in government-backed loans for small businesses, under the Paycheck Protection Plan (PPP). As a small-business owner or sole proprietor, that means you can borrow money to help meet your payroll, pay your rent or mortgage, and cover your utilities.
The first eight weeks of the payroll loan can possibly be turned into a grant, so that it can be free money for you. Even if not, the maximum interest rate is 1 percent, and can be deferred for six months to a year. You apply directly at authorized SBA lenders.
The question is, should you access this program? Here are a few scenarios when it does and doesn't make sense to tap into the PPP.
When you should take the loan.
- If you have work that employees can do remotely. You may not be able to sell today, but you can create, design, and code. Focus on jobs that your employees can do remotely. You don't want to bring people into work unnecessarily!
- If you suspect this will only be a blip and you want to be ready to come back online in a flash. No one knows exactly how this will end, but if you think it will be sooner rather than later, this is a great idea.
- If hiring will be difficult. You can lay off people now and rehire when things open again, but will that be easy to do? Yes, some of your staff will love to come back, but if you handle the termination poorly, or weren't a totally awesome employer to begin with, you may have difficulty recruiting. Remember, recruiting, onboarding, and training all cost money.
When you should not take the loan.
- If you think the crisis will be prolonged and you don't think your business will ever recover, it doesn't make sense. You'll just be adding to debt you'll have to pay back, with no company to earn the money.
- If you think taking on more debt will make your company insolvent--even in good times--this might not be ideal. It should be noted that while some aspects of the loans may be forgiven, that's not guaranteed. Plus, while they come with a reduced 4 percent maximum interest rate, that's still more debt. If you were just barely making it (or operating at deficit) before the shutdowns, you may not survive the increased debt.
There are a few more things to remember when making your decision.
Unemployment hurts everyone
When you layoff an employee, they are eligible for unemployment payments (generally--each state has its own rules), but those payments can be tiny--as low as $235 per week for state benefits. The federal government is adding additional money, up to $600 per week for eligible people. That's still below the average paycheck.
The Fed predicts a possible 32% unemployment rate.-- Liz Wheeler (@Liz_Wheeler) March 30, 2020
During the Great Depression, the highest unemployment rate was 24.9%.
In other words, unemployed people can't buy your products. You can't sell your products, so you can't afford to hire anyone, and the cycle gets worse. It's essential to keep people working as much as possible.
Speak with your local experts
Now is the time to speak to your finance department or accountant. Make sure you focus on what is right for your company and consider all the options. This loan may be just the thing you need, so take the time to review the information. The U.S. Chamber of Commerce published an easy to read overview of emergency loans under CARES. It can help get you grounded before you visit your bank and your accountant.