With the effects of COVID-19 rippling through the economy, it’s easy to feel overwhelmed. Many small businesses have shut their doors temporarily.
So, how can you protect your company's finances in a volatile economy?
1. Understand your current financial position
It’s smart to always have a handle on your numbers, but this becomes much more important during times of economic uncertainty, like now.
A clear understanding of your company’s financial position lets you see where you can cut costs, what expenses you can justify, and what debts might need to be renegotiated or deferred. Evaluate current assets and loans to see what can be leveraged during this time.
Bookkeeping in times of recession is more important than ever—having financial statements on hand are often necessary for payment deferrals or loan applications. If you’re behind on your bookkeeping and you’re not sure how you’ll get financial statements together, Bench can help.
2. Apply for disaster loans or financial relief
Nobody was prepared for the heavy-hitting impacts of COVID-19, but the U.S. government has stepped up and is rolling out new programs and loans to help companies stay in business.
Here are some of the latest options to take advantage of:
SBA Disaster Relief Loan
The U.S. Small Business Administration (SBA) has approved low-interest federal disaster loans for small businesses suffering substantial economic injury as a result of COVID-19.
- The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans up to $2 million
- You can use this loan for day-to-day expenses such as mortgage payments, payroll, accounts payable, utility payments, or vehicle payments
- You cannot use this loan to refinance existing debt, to replace lost sales or profit, or fund purchases of equipment, vehicles, and supplies
- Loans that exceed $25,000 must be secured by collateral. The SBA will not decline a loan if you don’t have enough collateral but will ask for whatever collateral is available, which may include real estate owned by a business’ principals
Further reading: How to Get an SBA Disaster Loan
SBA Express Bridge Loans
Applied for an SBA disaster loan but need cash now? The Express Bridge Loan Pilot program authorizes SBA Express Lenders to provide emergency loans in amounts up to $25,000 while your small business applies for and awaits long-term financing through SBA’s direct Disaster Loan Program.
There is a catch, though—your small business must have an existing business relationship with an SBA Express Lender. Check with your banking institutions to see if they offer SBA Loans.
- The small business must have an existing relationship with the funding bank prior to March 13, 2020
- Up to $25,000 in funding
- Fast turnaround
Further Reading: Express Bridge Loan Pilot Program Guide
Paycheck Protection Program
The Paycheck Protection Program is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This program is intended to provide American small businesses with eight weeks of cash-flow assistance through 100% federally guaranteed loans.
- The funding is meant to help retain workers, maintain payroll, and cover rent/mortgage/utility expenses
- Small businesses, sole proprietorships, independent contractors, and self-employed individuals can qualify
- The loan covers expenses dating from Feb. 15 through June 30, 2020.
- The loan can be forgiven and essentially turned into a non-taxable grant
Further Reading: What is the Paycheck Protection Program? (A Simple Guide)
The CARES Act (Coronavirus Aid, Relief, Economic Security)
The U.S. government passed one of its biggest financial relief bills yet—the CARES Act (Coronavirus Aid, Relief, Economic Security), with $350 billion being dedicated to preventing layoffs and business closures while workers have to stay home during the pandemic.
- Expanded Family and Medical Leave Act benefits for employees who are unable to work due to COVID-19
- Forgivable loans and tax credits for businesses that keep their employees for the duration of the crisis
- Deferment of an employer’s 6.2% share of Social Security taxes based on employee wages
- Expanded write-offs for improving property for retailers, restaurants, and hotels
- Expanding unemployment benefits for small business owners, self-employed individuals and gig workers.
- Option to carry back net operating losses to offset taxable income in prior years
- Extension of time to file and pay 2019 taxes
Further Reading: The Coronavirus Relief Bill: Every Benefit for Small Businesses
3. File your taxes sooner than later
If your tax filing deadline is April 15, there's good news: the IRS has officially extended this deadline to July 15, 2020. This extension includes making payments on any taxes owed, so you can defer without penalties and interest.
But just because you can put off filing your taxes, that doesn’t mean you should. If you’re owed a refund, the IRS is encouraging taxpayers to file as soon as possible. Most tax refunds are still being issued within 21 days, which could mean some much-needed cash for your business.
Even if you owe money, it’s still wise to file sooner rather than later. A lot of lenders or relief programs want to see an up-to-date business tax return. By filing now, you’ll have this important document on hand—and you’ll still have until July 15 to make a payment for any taxes owed.
If you’d rather have someone else handle your federal income tax filing, check out BenchTax. It’s optimized for remote working conditions, and gives you the support you need to navigate changing deadlines and tax environments.
4. Consider pivoting your business strategy
Even if you’ve made all the right moves for your business during COVID-19, there are still some things that are out of your control. A dip in sales is one thing, but what if your customers or revenue disappear altogether?
Consider an alternative, temporary revenue stream. Create an ecommerce site for your brick-and-mortar store. Or, if you run a fitness studio, stream live classes. If you run a salon or spa, sell gift cards for future services. Loyal customers are eager to help out their favorite small businesses if they can, so staying connected and empathetic to your customer base right now will go a long way.
Further Reading: Leading a Small Business Through a Recession: Five Best Practices