VP, Head of New York Life Business Solutions
Small businesses that need funding help for the coming weeks and months can try to tap resources from federal, state, and local government sources, as well as the private sector. Here's an overview of funding options:
A key component of the U.S. government's coronavirus relief effort, the Paycheck Protection Program, offers a forgivable loan to cover eight weeks of a business's payroll costs. In its first iteration, the program ran out of money in less than two weeks, but Congress has since poured more money into the program. For those who were approved before funds were depleted, this program is likely to help keep payroll costs paid, but for many businesses, the damage will last longer than eight weeks.
The federal government's relief effort also includes increased amounts of loans available through the SBA's Economic Injury Disaster Loan (EIDL) program. This program traditionally provides low-cost loans to small businesses affected by natural disasters, but the coronavirus version increases borrowing limits and is available to businesses across the country to be used for any business need.
Small businesses that qualify for SBA disaster loans during the coronavirus crisis can each borrow up to $2 million at a rate of 3.75 percent (and 2.75 percent for nonprofits). While businesses will have to repay what they borrow, they can do so over a long term of up to 30 years. However, the SBA has been overwhelmed with applications and for many, EIDL funding may take weeks or months to materialize.
In an effort to stem the economic damage from the pandemic, the Federal Reserve recently lowered its federal funds rate to zero and has signaled it will keep the rate low for as long as necessary.
Because most banks and lenders use the federal funds as a base point to set their own interest rates, it may be a good time to seek out traditional financing, such as a business loan or line of credit from your bank or other business lender. As the Fed's rate hovers around zero, businesses are likely to find opportunities to access credit at extremely low interest rates.
Many states and cities offer grants and other assistance programs to help small businesses bounce back. The state of New Jersey is offering a payment moratorium/loan fee forgiveness program for businesses served by its Economic Development Authority, among other initiatives. Birmingham, Alabama is providing loans up to $25,000 to help qualified businesses with 50 or fewer employees through its Bham Strong program. New York City has also offered zero-interest loans of up to $75,000 for businesses with fewer than 100 employees and a documented 25 percent drop in business due to coronavirus. The U.S. Chamber of Commerce has a listing of additional resources for small businesses.
Small businesses that are struggling may be able to find an outside investor, such as a venture capital firm or just a local investor, willing to provide funding in exchange for a stake in the business. While handing over some ownership is difficult for some owners, it may mean an opportunity to keep the business thriving during and after the crisis, which could be worth the sacrifice.
Sites like IFundWomen and Kickstarter offer platforms where business owners can connect with investors who want to invest small amounts in helping businesses succeed. These sites work like GoFundMe, pooling funds from many people together to meet the goals of a small business. IFundWomen recently launched a COVID-19 relief campaign to help funders quickly see which businesses are struggling during the pandemic.
Not every business that needs it will secure forgivable funding from the SBA, but fortunately, there are other options for covering the costs of your small business comeback.
About the author
Bob Patience is Vice President of Business Solutions at New York Life. Bob oversees our employee benefits business, including our payroll deducted individual life products and our group life and disability offerings. In Bob’s four years with New York Life, we launched our group offerings, re-priced and redesigned our individual products and re-positioned the business to support our agents by focusing on the financial needs of small businesses, their owners and their employees. In addition to his oversight of Business Solutions, Bob is also leading a number of work streams related to NYL’s pending acquisition of Cigna Group Insurance. Before coming to New York Life, Bob spent 30 years with Prudential, where he held a variety of product, underwriting, segment head, and technology leadership positions. Immediately before coming to NY Life, he was the P&L owner of Prudential’s $3 billion block of group life and voluntary benefits business. Bob has a BA from Colby College in Maine and a Masters in Business Administration from New Jersey’s Montclair State University.
This article is provided only for general informational purposes and is not directed toward any particular business or location. Business owners should consult with legal counsel or other knowledgeable advisors on governmental requirements and best practices before reopening.