Business Loans Blog and Resources

The economic impact of COVID-19 and related stay-at-home orders has reached nearly unbelievable proportions. As of April 10, 31 percent of Americans were furloughed or had lost their job because of virus-related events, according to a survey by Freedom Debt Relief.  But many businesses are hoping they can hang on to their employees until they can secure Paycheck Protection Program (PPP) funds to temporarily cover payroll costs or the economy reopens to begin the long process of recovery.  To business owners looking for every possible place to cut costs and preserve cash before initiating layoffs, there are several budget adjustments to consider.  (And if you’re an employee feeling vulnerable right now, this guide will help you understand what your company is up against.) Increasing sources of revenue may be out of the question right now, but you may be able to identify costs you can cut without devastating your company’s ability to — eventually — re-grow.  Decision-making principles Decision-guiding tools   Potential budget adjustments 1. Eliminate perk benefits2. Evaluate your workspace and equipment3. Suspend low-yielding growth initiatives4. Adapt marketing and sales strategies5. Consider co-opetition6. Negotiate contracts7. Protect revenue where you can  8. Eliminate non-essential software9. Re-orient and innovate 10. Apply for relief loans, grants, and business loans  Decision-making principles  Fintech product expert and Successful Release director Adam Sanders focuses on efforts with the highest-yielding ROI when successfully re-evaluating a budget and recommends the following:  Key Takeaway: Stabilize your business through strategic decisions.  Identify key drivers for success and prioritize those areas. Identify which expenses are easy to stop and start.  Project multiple scenarios for the next year and assume the worst. Focus on keeping the lights on, sacrificing future growth for stability in the short-term. In all business decisions, intuition and gumption can play a role in getting you to where you want to be. But data is key.  Decision-guiding tools  Sanders says QuickBooks has been helpful in managing his company’s expenses as it identifies patterns and specifics in spending and growth. "Going through all the data without software like this would have taken much, much longer," he explains.  Entrepreneur Bradley Steven, founder and CEO of LLC Formations, adds that financial pivots need to be extremely specific at every step of planning and execution. He shares, “HR developed a comprehensive report of the last five years of expenses by gathering and summarizing the data. This report assisted us in doing a SWOT (strengths, weaknesses, opportunities, and threats) analysis to guide our process.”  Budget analysis is the name of the game right now and expense management software plays a major role.  Alex Bean, co-founder and CBO at full-stack expense management platform Divvy, says that the need to manage budgets has always been a priority for their customers, but during this difficult time he's "seen users put an even greater emphasis on counting every penny — and stretching pennies where they can.”  According to Bean, Divvy helps businesses see exactly how much spend is going to every team, department, and budget in real-time. “Rather than waiting until the end of the quarter to review which projects are yielding the highest results, you can evaluate on a weekly or even daily basis," he explains. “This kind of real-time visibility helps businesses identify which expenses bring the highest ROI and thus, should be maintained.”  Read reviews from Divvy customers Potential budget adjustments  1. Eliminate perk benefits Your employees would rather have a job with few or no extra perks than no job at all.  Decide to pare down or eliminate some or all of the following perks if you’re offering them currently: Catered lunches Fully stocked break room Entertainment benefits Gym memberships  Company outings Seasonal activities Travel stipends  Company swag and other gifts  Dan Bailey, president of online marketplace WikiLawn Lawn Care, says he’s needed to cut back on using a rewards program service in which employees could accrue points towards gift cards. While he’d like to continue the program in the future, it’s not realistic for their budget right now.  Bailey’s employees took it well. He explains, “We were honest with our employees about it, and of course everyone unanimously agreed that while it's a loss, it's far preferable to being laid off.” 2. Evaluate your workspace and equipment  If your employees are working remotely for the first time, you may be already saving money with little to no cleaning service fees and lower utility bills.  If you find that a remote work setup works for your company, you may consider selling your space or not renewing your rental contract in the long term to get rid of your mortgage or rent, property taxes, and utilities.  A co-working space could suffice for in-person meetings to supplement video conferencing.  James Chittenden, a former small business banker and now co-founder of One Click Advisor, a business finance and business planning platform for startups and small businesses, points out that many banks have already made provisions to defer or modify mortgages. In addition, he says that pressure has been growing on landlords to be understanding with rent, with states such as California, New York, and Washington, imposing moratoriums on evictions. Regarding equipment costs, Chittenden recommends that, in general, businesses lease their equipment instead of buying it. Why? “The owner assumes the depreciation and pays any debt associated with owning it,” he explains. If you do own a piece of equipment that you could lease to someone else, map out a plan for doing so.  Use the furniture and technology already onsite to outfit employees’ work from home stations. If you need to buy supplies, buy gently used.  3. Suspend low-yielding growth initiatives  You’ll probably need to make some moves that don’t align with the dream you initially had but nonetheless extend the life of your business. This might include halting the investment in high-potential but low-performing growth initiatives such as the following:  Products or services that require several times the current amount of users to generate sufficient revenue Partnerships that have gone stale or that haven’t fully materialized Serving customers or clients whose return doesn’t justify the spend of time and money Peripheral, exploratory efforts that don’t align with your core focus  Whether it’s letting go of a customer, a client, or a campaign, do what you need to do to focus on initiatives that can pay your bills right now.  4. Adapt marketing and sales strategies  Tough economic times call for nuanced approaches to marketing and sales.  Here’s what some companies are doing:  Reduce online ads According to Michael Alexis, CEO of physical and virtual event services company Team Building, it’s easy to adjust spending on online ads: “You can usually modify the display volume and cost instantly, which means that you can reduce it and increase it again as needed.”  Prioritize present over future Alexander Kehoe, co-founder and operations director of web design company Caveni, shares, “We have had to scale back and cut long-term programs that were meant to capture new clients down the line in favor of supporting shorter-term programs that generate more immediate cash flow.” Kehoe says the sales team has been instrumental in results-based reporting. Instead of directly calling potential clients, Caveni has instead opted for a digitally based sales process.  Lean on search engine optimization (SEO) Shawn Breyer, owner of Atlanta House Buyers, points out that SEO is a low-cost alternative to online ads. “Since we have always focused on SEO as a marketing strategy, we are still generating leads for our business,” he explains. “Having enough organic leads to fund operations has allowed us to cut out paid marketing, which has saved us thousands of dollars each month and allowed us to keep people employed instead of laying them off.”  Cut direct mail ads Jonathan Faccone, founder of Halo Homebuyers LLC, a real estate development and investment company, says that since real estate transaction activity has slowed, he has cut marketing generating mediums like direct mail since it is his largest expense and it is not generating the activity necessary to justify it right now. Faccone explains, “Even if we were generating new business with direct mail, we can not take on additional projects that require large capital investments and greater liquidity strains. We just don't know how soon we would be able to sell projects once we are finished with them and what they would sell for.”  Pause completely for a time For business owner Christina Kumar, “marketing had to be cut to minimize new orders due to extreme shipping delays” and won’t be re-launched until the economy reopens again. Kumar says she doesn’t know when the orders from her distributors will arrive and she wants customers to have minimal wait times after placing an order.  Keep in mind that adjusting your marketing and sales efforts doesn’t mean you have to stop them. Focus on low-cost efforts like engaging your organic social media followers, crafting tasteful emails for your subscribers, and producing keyword-optimized content on your website.  And where the demand for online ad space is relatively low right now, it may actually be a good time to try bidding for some affordably priced ad space on Facebook or Google.  5. Consider co-opetition Co·op·e·ti·tion: collaboration between business competitors, in the hope of mutually beneficial results. It might sound like a crazy idea, but if you’re struggling, your competitors are too. No one wins if you both go out of business! This may be a good time to consider splitting supply costs or sharing resource libraries, partner network benefits, or even a workspace with a competitor or with any local company whose needs and opportunities complement yours.  An online barter exchange is another option. Belonging to a barter organization like International Monetary Systems (IMS) allows businesses to get some of the supplies or services they need without spending cash they don’t have. For example, a small business could hire a lawyer, accountant, or landscaper or purchase goods from a supplier by trading their company's products or services.   report_problem Attention: Bartered exchanges are taxable.  Keep in mind that you do need to pay tax on a bartered exchange. The fair market value of the property or services received through a barter exchange is considered taxable income and both parties must report as income the value of the goods and services received.  6. Negotiate contracts  Your point of highest leverage is when you still have cash, so if you haven’t started negotiating with vendors, partners, and other parties, do so now.  Negotiating can certainly include a healthy dose of collaboration. But ultimately, you need to do whatever you can to generate cost savings for your business from the following parties, among others: Electric, phone, and internet providers Landlords Lenders Manufacturers Suppliers Affiliate partners  To negotiate for lower inventory order costs, first price out other suppliers and then request a discount for a price match from your current supplier.  James Chittenden says negotiating with suppliers during hard times is vital and recommends consignment, floor planning, and term restructuring. “One way to negotiate with suppliers is to ask for easy terms, for example, 45 days,” he explains. “In return, after six months, you will pay five percent over invoice for another six months.”  7. Protect revenue where you can   On the flip side, be prepared to protect what revenue you do have when your clients or vendors approach you with negotiation proposals.  When a customer or other party comes to you to negotiate, examine all relevant information through a discovery call including their usage, activity, and other analytics to understand the complete impact of what they are experiencing. If someone is truly unable to meet previously agreed terms, be open to negotiation. But if there are no clear indicators that they’re worse off than your own business, you may need to be firm in your expectations.  You could lose customers by saying "no," but that doesn't necessarily mean you made the wrong decision.  8. Eliminate non-essential software Don’t ditch any software that is essential to your operations or that drastically improves efficiency. But if there are programs collecting dust, stop paying for them.  Dan Bailey canceled several subscriptions and switched to a less expensive web host.  Michael Alexis found lower-priced substitutes. For example, their previous email marketing platform was costing them $5,000 per year, and they transitioned to a self-hosted version with fewer features, but is reportedly fast, easy to use and costs less than $4 per month.  Ken Eulo, founding partner of Smith & Eulo Law Firm, decided to cut down on tools that helped the business but that were ultimately not essential to its survival. This included their CRM and email marketing tools. “These things made our work life easier, but with a little more effort, these tasks can be done by employees.” he explains.  Along those lines, if there are money-saving tasks that require simply a set amount of time and some grunt work, like changing your credit card processor or adjusting your Amazon Web Services or other account details, buckle down and do it.  9. Re-orient and innovate  Small business consultant Racheal Cook gives the following recommendations for businesses to successfully pivot during a crisis:  Key Takeaway: Identify your unique opportunities for a meaningful contribution.  Ask, "What can I offer my community right now?" Don't reinvent the wheel, but do look for low-hanging fruit. Keep making offers, even if you need to tweak or completely change your existing offers; relevance is key. Keep showing up, and don't stop your offering.  Lean into those that support your business emotionally and strategically.  What can that look like during COVID-19?  In mid-March, word-of-mouth marketing platform Wooly founder Scott Paul found that many of his clients could no longer pay for the service. He decided to remove his own salary from the budget. Then he adapted the business model to keep the business afloat. Now, Wooly charges customers only when they get paid instead of charging for the service upfront.  For cash flow, Paul started a completely new side hustle: a reusable mask production company, MIAKOMO, making masks similar to the N95 but at a price of $0.30 per use rather than the $7 per mask rate some brokers are charging for disposable masks made in China. This new company provides a needed product, generates cash, and contributes meaningfully to the world. And he’s been able to utilize Wooly marketing methods to promote the new product.  10. Apply for relief loans, grants, and business loans  If you’ve never needed a loan or grant before, chances are you need one now. Access to PPP loans has allowed some struggling businesses to maintain payroll. But there are other resources available too.  Federal relief initiatives include the following:  Paycheck Protection Program (PPP) loans provide up to $10 million and include loan forgiveness for retaining employees.  The Economic Injury Disaster Loan (EIDL) provides up to $2 million with a $10,000 advance available.  Small Business Administration (SBA) Express Bridge Loans enable small businesses with a business relationship with an SBA Express Lender to quickly access up to $25,000.  The SBA Debt Relief program will automatically pay the principal, interest, and fees of current 7(a), 504, and microloans for a period of six months.  The Main Street Lending Program will support lending to small and medium-sized businesses that were in good financial standing prior to COVID-19 with new loans running from $1 million up to $25 million but without the loan forgiveness or low APR of the PPP.  The U.S. Small Business Innovation and Research/Small Business Technology Transfer (SBIR/STTR) program assists small businesses engaged in vital technological, scientific, or medical research (including efforts to find a cure for COVID-19).  While these loan programs are playing a crucial role, most businesses (92 percent according to a survey by Small Business Majority) say what they really need to survive this crisis is direct grant assistance. Grant programs have zero risks in that they don't require repayment. Nav's state and local resources page is a great starting point for finding state-based relief.   But as with all of the unknowns surrounding the pandemic, there are no guarantees for securing state funding.  When Denver-based photographer Jermaine Amado heard there were no more PPP funds available, he searched everywhere for other small business resources and stumbled upon Colorado’s COVID-19 Business Resource page. He quickly got to work applying for some of the grants available.  However, after two weeks and counting, he’s still waiting for relief. “I heard back from one Denver-specific grant that I was ineligible because my mailing address is in a neighboring city,” he says. “But I’ll keep applying and hoping.”  Resources that are not pandemic-specific are still on the table  Traditional SBA loans typically have low-interest rates for applicants with excellent credit, though they are historically slow to fund.  A traditional business loan with your financial institution is another alternative to the PPP, assuming you can qualify based on your business credit report.  According to Brian Cairns, CEO of ProStrategix Consulting, “Even if you have great credit and especially if you have less than stellar credit, alternative lenders are worth a look.”  He continues, “They are faster and more forgiving, but they do charge higher interest rates. Lending platforms such as Lendio and the like are a good place to start. They enable you to access a network of lenders with one application and typically do not require a hard pull until you formally apply to the bank you choose.”  Read reviews from Lendio customers Wrapping it up  It’s every employer’s hope that by cutting expenses, maximizing revenue sources, and accessing economic relief they can keep payroll intact.  Aside from the toll layoffs can take on company morale, it’s expensive and inconvenient to rehire. It takes the average U.S. employer $4,000 and 24 days to hire an employee when factoring in job sourcing, recruitment technology, marketing, in-house recruiting staff, and referral rewards, according to a Glassdoor study. Though it’s likely those numbers will be unique during and after this pandemic is resolved.  At this point, no one can predict exactly what the future holds for our country’s economic health at the macro or micro levels. We just hope that individuals and businesses can make the decisions necessary to make it through, one day and one challenge at a time.