The wage protection program is ending, which means that sick small businesses will need to seek funding elsewhere.
But where to turn?
Although there are other options that can help entrepreneurs during a recession caused by coronavirus, they are limited and may not have favorable conditions for borrowers, according to experts.
“When you get into a recession, the flow of capital cools,” said Chris Hearn, CEO of Fountainhead Commercial Capital, a non-bank commercial lender.
“I don’t know how common some of these things will be right now based on credit markets and where they are,” said Hearn about sources that go beyond government loans such as PPPs.
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Small Business Administration has approved almost 4.8 million forgivable loans to small enterprises under the Wage Protection Program since its opening in early April.
Credits created in accordance with the CARES Act may turn into grants if they are used in accordance with certain parameters established by the federal government.
Applications must be approved by the end of Tuesday to gain access to the $ 130 billion remaining in the program.
It seems that at the last moment there is a demand from borrowers. For example, Fountainhead has approved 317 loans worth $ 56 million since Friday, Hearn said.
Other government loans
First of all, entrepreneurs should seek help as soon as the PPP approval window closes, these are alternative loans offered by SBA.
For example, the Economic Injury Loans program provides assistance of up to $ 150,000, as well as an emergency grant of up to $ 10,000 for small businesses.
This program suffers from delays and rule changes regarding loan amounts and potential applicants.
SBA seems to be “becoming more choosy than they were previously in [disaster loan] The program, “said Brooke Lively, president of the Cathedral Capital, which is CFO for small businesses.
A government agency also has something known as 7 (a) programCommonly used for things like working capital and business debt refinancing, Hearn said.
And his 504 loan program is often used to buy commercial real estate and heavy equipment, he said.
Both types of loans usually offer up to $ 5 million.
The Federal Reserve has also created a loan program on the main street for small and medium-sized businesses. The minimum loan available under this program is $ 250,000.
According to Roger DaSilva, founder of Realm Startup Advisory, another outsourcing company for financing small businesses, many traditional forms of financing, in addition to borrowed funds from the federal budget, will be limited.
“The reality is that there is nothing for them,” DaSilva said.
This is partly due to the fact that credit organizations tighten their loans or focus on other lending programs such as PPPs, he said.
But many will need additional financial assistance.
According to a survey conducted by the National Federation of Independent Business, a trade group, nearly half of small businesses that received PPPs or disaster loans expect that additional funds will be needed over the next 12 months.
According to the survey, about 44% expect them to need more than $ 50,000.
Such enterprises should go to their bank and ask for a loan or a line of credit (or increase an existing line of credit), Lively said.
Getting a line of credit is generally preferable because it is often more flexible than loans, and borrowers ultimately pay less interest, she said.
Lively warned that businesses should be wary of taking on more debts, especially if the borrower must sign a personal guarantee to secure a loan or if the business was struggling before the coronavirus pandemic.
Business owners can also explore options such as income-based financing, DaSilva said.
In accordance with this agreement, the bank usually receives money to produce goods or services that the borrower pays after the restoration of the business. But there are risks – firstly, the business may not return as fast as expected.
In an extreme case, according to Lively, you can get a loan through a credit card company.
For example, a loan issued by American Express will be repaid by paying interest on each AmEx commission before repaying the loan, Lively said. But the interest rate is often high, and borrowers cannot control the maturity, she said.
Businesses with cash difficulties may also use “proven and genuine” methods, other than borrowing, for example, trying to renegotiate contracts with suppliers to provide better prices.