ADVICE FOR U.S. SMALL BUSINESSES AMID THE CORONAVIRUS PANDEMIC.
Congress has approved and Trump executed the CARES Act, a $2 trillion stimulus bill to boost the US economy, addressing the impact of the coronavirus.
The legislation authorized around $500 billion in loans and other forms of financial support to companies (with adequate oversight and labor protection provisions, a key demand from Democrats), and funding for state and local governments, in addition the bill includes $350 billions in financial assistance to small businesses, and $150 billion to hospitals and other healthcare providers.
The proposed legislation would deliver direct relief payments to $1,200 to single Americans, $2,400 for married couples, and $500 for each child under age 17. However, take note, the payments would start to phase out for individuals with adjusted gross incomes of more than $75,000, and those making more than $99,000 would not qualify at all. These thresholds double for couples. Although the government plans to expedite this payments, many experts consider unlikely that those will reach people at large around May. It is important to note that Brookings Institution has made an important preliminary assessment on the reach of direct payments in this terms:
“The IRS will use 2019 tax returns (or 2018 returns if the 2019 return is not yet available), Social Security benefit statements, and Railroad Retirement benefit statements to calculate the direct payment owed. Almost three quarters of tax filers will qualify for aid; the others will be disqualified on account of high incomes. As a result, the distribution of the direct payments is progressive.
But it bears emphasis that many low-income or otherwise vulnerable households may struggle to obtain a payment, especially people who may not have filed a 2018 or 2019 return. These include workers who earn less than the standard deduction ($12,200 for single filers in 2019, $24,400 for joint filers, and slightly more respectively for seniors) and people who earn cash income but don’t report it. Dependents over the age of 17, such as cared-for parents and disabled children, are not eligible for the direct payment, but their caretakers also will not receive a $500 benefit for them. The CARES Act also excludes tax filers without Social Security numbers (SSNs), requiring both taxpayers and their spouses to have SSNs if their payments are determined from a joint return. The choice to give payments only to households with SSNs leaves out Dreamers and families of filers with only Individual Taxpayer Identification Numbers.
The law gives the Treasury discretion to get direct payments to some of these households using certain information that the federal government can access, but it remains to be seen how fully that discretion will be deployed. Many millions of low-income or otherwise vulnerable households may need to file an informational return in order to claim the direct payment. Previous experience with direct payments in 2008 and 2009 shows that many of these households will not file. Filing will only be harder now, when people are isolating and unable to get face-to-face help from family members or government agencies.” This is particularly relevant, first given its social justice implications, but also must be flagged to the business community and particularly to small hispanic and minority business owners, that many in their work force could be left out of relief, which must be taken into account if you want to implement a plan of solidarity with your workforce.
Among the different sectors impacted by COVID-19, small businesses are especially vulnerable and have to get ready for what is to come. In order to help them, here is some advice for them to follow:
1) Prepare yourself to access or apply to available refinance, loans, and grants.
- Call your accountants and prepare financial due diligence packages and review the typical SBA loan application and requirements.
- Talk to your bank to explore options or visit online Fintech platforms to see what they would require to lend or open a line of credit for your business.
- Remember to compare interest rates and then decide what your best alternative is, given your credit rating.
2) You must be very cautious of predatory lending proposals that will hit your inbox during these days.
- Review carefully any lending option, interest rates, and terms. The last thing you need in this context is to fall into unsustainable and costly loans desperately.
- It is also advisable to look into equity available on the company’s property. For instance, equity mortgages at this interest rate could be a good way to refinance all your liabilities or fund a strong comeback into the regular business after the crisis is over.
3) Look into your cash flow and reserves—if any—as well as payables and receivables.
- To figure out the prospects of your current assets and liabilities, identity prospects for renegotiating terms of your payables (money you owe) and assess the status or strength of your receivables (invoiced you have issues and outstanding). Together with that work in projecting your cash flow, and plan accordingly.
- Use the time to connect with suppliers and clients to show you are there, thinking of them and your business relation.
4) Remember that your deadline to file and pay tax is postponed to July 15th, but you should make provision for the liability. It’s postponed, not condoned, therefore plan ahead and accordingly.
5) Finally, you must look into fixed costs like rent and utilities, and explore options that are available in this context to postpone payments and design a sustainable plan to spread those payments in arrears among future payments.
Fundamentally, this moment is a call for leadership. And every small business owner must lead. It is the time to work with your employees on options to protect their health as well as their jobs without hurting the business. Talk to your employees to see how they are doing, understand their fears and needs, explain yours, and those constraints the business is facing. Discuss options, ideas for potential new lines of business, and strategies; be confident and have a plan to share with employees, contractors, suppliers, and clients. People respond to empathy. Cost-sharing and sacrifices can be assumed when fairness is present, but mostly, when your leadership indicates that the business unit will come out stronger after the crisis.