Your guide to the many resources that are available to help small businesses financially survive the pandemic crisis.
The economic impact of the coronavirus pandemic and recovery is expected to continue for months—and, potentially, even years. As Congress and other government agencies attempt to save different areas of the economy, all florists should understand the many resources available to help with their own recovery.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act increased the deduction of business interest from 30 percent of adjusted taxable income to 50 percent—at least for 2019 and 2020. While there continues to be no limitation on deducting business interest for smaller floral businesses, the CARES Act specifically earmarked funds for businesses and other eligible applicants, with a major portion coming from the Payroll Protection Program (PPP).
Overseen by the U.S. Small Business Administration (SBA), the PPP offered low-interest government-backed loans from private lenders that could be used to help small businesses and professional practices retain workers and continue to pay their bills during the pandemic.
Best of all, compliance with the PPP meant that those low-interest loans could become “grants” and not have to be repaid. Unfortunately, although the SBA reportedly had funds remaining from a supplemental funding bill, applications for the program list an expiration date of Oct. 31, 2020, suggesting a deadline.
Fortunately, the government’s coronavirus-related funding didn’t end there. Economic Injury Disaster Loans (EIDL) are a longstanding program offering low-interest loans directly by the SBA (rather than by a bank) of up to $2 million o small businesses that have suffered major issues related to the pandemic. These loans can be repaid over a 30-year period and carry an interest rate that won’t exceed 4 percent—with no payment due the first year.
In response to the pandemic, Congress added a provision to the EIDL program offering an immediate advance of up to $10,000. Effectively a grant, this amount does not have to be repaid and is available within days of a successful application.
In addition to interest rates lower than conventional funding, SBA-guaranteed loans have long provided a way out of damaging financial situations. The SBA’s guarantee, lower interest rates and longer payback periods mean more money is available to borrowers for other business needs. While the terms depend on how the funds are going to be used, several different SBA loan programs, each with their own advantages, restrictions and limits, are offered:
• The most popular program is the SBA’s flagship 7(a) Loan that provides working capital for a wide variety of uses. 7(a) Loan guarantees, topping out at $5 million, are commonly used for acquiring land, purchasing equipment or working capital. They require low down payments and offer flexible terms and affordable variable interest rates.
• SBA Express Loan applications are responded to within 36 hours and can help extend a business’ credit line by providing up to $350,000 for up to a seven-year period while guaranteeing only 50 percent.
• SBA 504 Loans are longer-term fixed-rate loans that provide capital for the acquisition of fixed assets and are usually used for owner-occupied real estate and equipment purchases. However, while SBA 504 loans are most commonly used for real estate, they can also be used to renovate existing facilities, purchase equipment with a service life of 10 years and refinance commercial real-estate debt.
• The SBA’s Microloan program provides loans to not-for-profit lending intermediaries that, in turn, make loans of up to $50,000 to help small businesses and certain not-for-profit childcare centers start up and expand.
Small Business Development Centers (SBDCs), almost 1,000 strong, “help existing businesses remain competitive in a complex, ever-changing global marketplace.” SBDCs are hosted by universities and state economic development agencies, and they’re funded, in part, through a partnership with the SBA. Less than half of an SBDCs’ funding comes from the SBA, with the remaining portion coming from Congress, state funding, donations, grants and corporate sponsorships.
The Federal Reserve System’s Main Street Lending Program is providing up to $600 billion in loans to small and medium-sized businesses. Designed to help businesses in need of funding to help until they have recovered from or adapted to the impact of the pandemic, the program offers five-year loan amounts ranging from $250,000 to $300 million.
Most state and local programs, both those aimed at attracting or retaining workers and those recovering from the pandemic, offer tax breaks and/or non-repayable grants. With many small businesses impacted by the coronavirus pandemic, numerous state and local governments are offering assistance in the form of low-interest loans and grants.
At least 24 states and the District of Columbia have financial aid programs, loans, grants and funds designed specifically to help small businesses survive the pandemic. Keep in mind, though, that because demand continues to be so overwhelming, some funds targeted for business-related pandemic relief and recovery have run out of money faster than anticipated.
It is all too easy for flower shop owners and managers to overlook their banks and how important a banking relationship can be—as many discovered when seeking PPP funding. In addition to access to SBA programs, banks offer an array of programs to help those affected by the pandemic.
Of course, bank loans continue to dominate financing for florists in need of capital. After all, proper use of small-business loans can consolidate debt, provide needed capital, allow for expansion and aid in the recovery process. But don’t overlook funding from other financial institutions such as these:
• Bank of America is providing up to $200 million in capital to community-development funds, including $10 million in philanthropic grants to help fund Community Development Financial Institutions (CDFIs).
• Citi has also committed $10 million to help CDFIs provide funding to those who may not fully qualify for federal government stimulus funding.
• Goldman Sachs committed $300 million to aid small businesses and communities suffering through the coronavirus crisis. The package included $250 million in emergency small-business loans and $25 million in grants to CDFIs.
• JPMorgan Chase pledged $50 million to help businesses, nonprofits and other organizations during the crisis. Of the $50 million, $8 million was specifically reserved for “small businesses vulnerable to significant economic hardships.”
Financial institutions are increasing the digitized services they offer to compete with the new Financial Technology (FinTech) marketplace. After all, business lending is becoming a big business, with hundreds of millions of dollars raised from unique FinTech “platforms” such as Crowdfunding, Peer-to- Peer Lending and Marketplace Lending.
So-called “digital transactions” involve constantly evolving methods where FinTech companies collaborate with various sectors of the economy to take advantage of new lending and capital raising opportunities.
In fact, FinTech is one of those areas that is predicted to see further strength and is expected to reach $22.6 billion by 2025. As mentioned, FinTech-related funding vehicles include platforms such as:
• Crowdfunding is becoming a popular alternative source of financing for many small flower shops, wholesalers and suppliers. The Securities and Exchange Commission (SEC) now allows businesses, even first-time start- ups and non-brick-and-mortar florists to raise up to $1 million online from non-accredited investors over 12 months.
• Peer-to-Peer (P2P) Lending can be best described as “non-bank banking.” It is the practice of matching borrowers and lenders through online platforms. P2P borrowers are able to gain access to funds quickly and often at lower interest rates than banks, making it an attractive alternative to more conventional bank loans. Unfortunately, even though it may be the most innovative source of funding, P2P Lending is definitely not the most affordable.
• Marketplace Lending refers to the segment of the financial-services industry that uses investment capital and data-driven online platforms to lend directly to small businesses and consumers. Marketplace lenders employ new, largely automated underwriting processes and, although remaining largely undefined, encompasses lenders that make loans to higher-risk, lower-income borrowers.
• The Save Small Business Fund, created by the <>bU.S. Chamber of Commerce, offers grants of $5,000 to provide short-term relief. Those qualifying must have between three and 20 employees, be located in an economically vulnerable community and have faced financial hardship due to the coronavirus pandemic.
• Intuit QuickBooks, Yelp and GoFundMe have teamed up to provide funds to the Small Business Relief Fund, a program providing grants, tools and resources to help during the crisis. Participants must be independently owned and operated and must not be dominant in their field. Each recipient must also intend to use the fund to help care for employees or pay ongoing business expenses.
Every florist should be keeping a close eye on upcoming legislation and be prepared to take advantage of every new applicable funding program. After all, at the time of this writing in late July 2020, lawmakers were working on another bailout bill; the SBA was continuing to upgrade and refine its loan and loan-guarantee programs; and banks and other financial institutions, both online and brick-and-mortar, were continuing to offer assistance to their customers.