The current Covid 19 Pandemic has affected the entire country, including all U.S. Citizens and both small and large businesses. Small and large businesses alike have been forced to close and are trying to figure out how to survive during this pandemic. Businesses must adapt and stay up with the latest news to make changes accordingly to survive and thrive.
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As most business owners know, the federal governments Paycheck Protection Program (PPP) ran out of money for small businesses nearly two weeks ago. Just this week the Congress approved an additional $484 billion dollars and now the President only needs to sign off on the additional stimulus for businesses. If you have questions on how to apply for the PPP loan, please call our office.
What should a business do during this pandemic
Small businesses including restaurants, bars, hotels, and even barbers have been forced to close because of the pandemic and are faced with tough decisions. Florida and Miami where our law office is located has not been spared. Some of the questions facing businesses are:
- Should the business continue to pay or furlough its employees?
- Should the business continue to pay its lease?
- Does the business qualify for a loan from the federal and/or state government?
- What other cost cutting can the business do during this crisis?
Overall, businesses should consult with experts like attorneys and accountants before making any decision which could put there business in jeopardy during these difficult times. Our office is open and our attorneys are ready to answer any questions business owners may have, do not hesitate to call our office, just follow this link: Questions for G&R Law.
Should the business continue to pay or furlough its employees?
It depends on the balance sheet of the business, the type of business, the type of employee and whether he/she is a key employee, whether the employee has an employee contract, the laws in your state, the length of closure, and a number of other factors.
For instance, here in Florida where we are a “no fault” state, an employee may be let go for good, bad, or no reason as long as it is not for a discriminatory reason. Businesses may furlough there employees without the fear of recourse from their employees. This is a quick way for the business to reduce its cash flow but may have other consequences upon reopening. For instance, if the business is a restaurant, and the business fires its head cook it may not be able to rehire that employee upon reopening if he/she is no longer available.
Should the business continue to pay its lease?
The business should contact its landlord and discuss the situation and the possibility of working out a payment plan or deferment during the pandemic. Also, the lease contract may have whats called a “force majeure” provision which may provide the business with the ability to stop paying rent during the pandemic. Sometimes these provisions need to be interpreted and its best to have your attorney review your lease to advise the business accordingly with the various options that may be available to the business before making a decision which may adversely affect the business.
Does the business qualify for a loan from the federal and/or state government?
The business must determine whether it has enough money on hand to last the business through the pandemic or whether it should seek a loan to help the business survive. Many factors depending on the type of business can help answer this question along with the estimated time for the reopening of the business and the type of business and whether a cure or vaccine is found. No one knows how long this pandemic will last, it may depend on the region or city where your business is located so you have to plan accordingly. You have to know what it costs your business to operate on a monthly basis, how much liquidity the business has, what costs it can cut now, what is the likelihood that when the lift the “stay at home” order the business will be back up as normal or whether it will take it some time to operate as before. These and other questions must be answered before the business will know what kind of loan or multiple loans it needs to survive.
If the answer is to try and find a loan, the business can seek private (local bank) or public funding.
The Paycheck Protection Program Loan
The Federal government created the Paycheck Protection Program Loan commonly known as the “PPP” program for small businesses of less than 500 employees. The program is basically a 1% loan from the government to small businesses where all or part of the loan will be forgiven “if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.” The problem with this loan has been the ability of small businesses to sign up for this loan because it has to be done through a bank where the business has an account and the disbursement of the funds before they run out. As of April 16, 2020, the Small Business Administration (SBA) has announced that they are no longer taking applications as the funds have run out. Congress may provide more funding for the program but as of yet, they have not voted to increase funding.
For more or the latest information, go to the SBA website for the Paycheck Protection Program Loan.
Other loans available to small businesses and links to their websites for both Federal and specific to Florida are as follows:
- The SBA EIDL Loan Advance – this loan provides up to $10,000.00 of economic relief to businesses that are currently experiencing temporary difficulties. This loan is relatively easy to apply for directly through the SBA website but I have not heard of any business receiving and loan as of yet.
- Small Business Administration (SBA) – the SBA has other programs for Bridge Loans and Debt relief for businesses which already have a relationship with the SBA.
- The Florida Small Business Emergency Bridge Loan – The short-term, interest-free loans of up to $50,000 help bridge the gap between the time the economic impact occurred and when a business secures other financial resources. Currently, they are not taking applications for these loans but its good to keep checking occasionally as they may at some point accept new applications.
- Florida Small Business Loan Program – “The Florida Small Business Loan Program is available to qualified businesses that demonstrate adequate historical and/or proposed cash flow coverage and other credit underwriting metrics. The loan proceeds must be used for a business purpose. A business purpose includes, but is not limited to: startup costs, working capital, business procurement, franchise fees, equipment, inventory, as well as the purchase, construction renovation or tenant improvements of an eligible place of business that is not for passive real estate investment purposes. Loan Participation is up to 50 percent of the total loan amount. With the 504 Bridge Loan Participation, lenders are permitted to finance equipment and owner-occupied real estate purchases up to 90 percent of the total project cost. Loan amounts range from $250,000 to $5 million.”
In summary, each business should review or have its current accounting and lease documents reviewed professionally by an attorney and/or accountant before making a financial decision on whether to put on more debt to the business which could detrimentally affect the business and its employees. At G&R Law, our attorneys can help in helping the business survive, from helping to obtain loans to reviewing your contracts with vendors and/or landlords to help you in making an informed decision as to what to do to help your business survive. If you have any questions or concerns, please contact our office at G&R Law and ask to speak to an attorney.