As businesses everywhere continue to shut down in an effort to slow the spread of COVID-19, many small business owners are left to wonder how they might survive this period of quarantine. Murray State professor of economics, finance, and banking, Dr. Chris Wooldridge, speaks with Tracy Ross over the phone to discuss possible plans of action and available assistance from the Small Business Association.
"This is definitely a unique time," Wooldridge begins. "Definitely unprecedented. Maybe we've seen some touches of this when we had the ice storm and, of course, 9/11 from an economic standpoint. This [pandemic] is probably going to be a little more protracted than that."
"For restaurants (and really any business), I would say that one of the top concerns right now is to conserve cash. Cash is a life-blood of the business. Really making sure [to] understand how cash flows in and out of the business, conserving as much of that cash to maintain positive cash flow, is going to be key," Wooldridge says.
"I would say for most of our small businesses, one of the first steps that we might consider taking is preparing a six-month cash flow projection. The business owner sits down and looks at what cash is coming in the business and what cash is going to go out of the business over that period of time. [Make] realistic assumptions," Wooldridge says. Some questions to consider when creating a six-month cash flow projection are:
- What operating expenses can I cover? How can I adjust those expenses?
- What can I reasonably expect based on what I know today?
- What am I selling in my business?
- What sort of traffic do I see?
- Do I have any reserves? Is it possible to create any reserves?
- Are there available borrowed funds?
- Are there programs that are going to be available to provide assistance?
- What is my business's operating cycle? How long does it take to generate revenue and pay expenses?
"At the Center for Economic and Entrepreneurial Development, we have a lot of partnerships with a lot of different federal and state agencies. The Small Business Administration has probably been the most aggressive in reaching out and putting some information out there. The SBA issued over the weekend its disaster assistance response for this virus," Wooldridge says.
"The SBA is working on what they're calling an 'economic injury disaster loan program,'" Wooldridge continues. "That program is going to lend up to two million dollars per small business that can evidence under [the SBA's] requirements that they are suffering."
"Those loans are meant to pay debts, payroll, accounts payable, other bills that can't be paid because of the disaster's impact. It doesn't mean that everyone gets two million dollars. What that means is they get to apply for it. Then, the SBA is going to make a direct loan, from my understanding, to those borrowers. It won't necessarily be the traditional SBA lending where a bank is involved. [The program] requires the governor's request for the disaster's assistance. My understanding is that it has been done and is in the process of being approved."
The loans will be "fairly competitive from an industry standpoint," Wooldridge explains. "Based on what we're seeing from SBA, that's going to be about a 3.75% interest rate. It could be for up to a maximum of thirty years. That doesn't necessarily mean we want to pay for a loan for thirty years, but generally looking at the cash flow needs of the business...I think [there is] a lot of flexibility on SBA, at least on this initial side, of getting dollars to those businesses to keep those businesses up and running."
"Once the SBA approves the state request, there's going to be a website that they can go to. There's also a number they can call directly to get SBA's assistance," Wooldridge says. The SBA customer hotline is 1-800-659-2955. The website has in its disaster aid assistance page quite a bit of information about what they're rolling out. I would recommend patience with the process. Once these go online, the SBA's going to be flooded with requests. It's not like a check's going to show up tomorrow. Managing [and] conserving cash over the next week or so is going to be critical. Hopefully, SBA will have its process ironed out by then."
"Making sure that our families and we are safe is of primary importance. But there are things that we can do that would support these small businesses. Our restaurants are going to be driven by the public's demand for take-out and delivery. When that makes sense for us as consumers to do that, I would encourage us to do that because, especially in our community and region, we're helping ourselves."
"We're helping keep our friends and our neighbors' businesses open. We're helping keep those businesses and those employees in place. As business owners, we have to be prepared to deal with the situation because it is what it is. For our long-time survivability of our operation, we have to focus on cash -- what cash we have coming in and what cash we have going out. [We need to focus on] maintaining that blood supply for our business to stay open, so when the clouds do lift, we can get back to normal operations and keep continuing to build that commerce base for our communities," Wooldridge concludes.
For updates on the coronavirus, visit the CDC:
https://www.cdc.gov/coronavirus/2019-ncov/index.html
For updates on the Small Business Administration's assistance program, visit their website:
https://www.sba.gov/disaster-assistance/coronavirus-covid-19
