By Gerri Detweiler
According to a survey by the blueprint, 94% of small business owners surveyed reported their businesses have been negatively impacted by the coronavirus (either “moderately” or “severely”), with businesses in the healthcare and medical industries among those most significantly impacted. If your business is still struggling to find its financial footing, here are some options you may want to consider:
1. Negotiate with suppliers and vendors
According to the 2020 Small Business Credit Survey (SBCS) by the Federal Reserve, twelve percent of businesses rely regularly on “trade credit,” also known as supplier or vendor credit. When businesses can’t pay their bills, those suppliers and vendors are often directly impacted as well.
Talk to your suppliers about extended payment terms; many will work with you. After all, they want your business to survive in the short term, and they want to keep your business for the long term. If they aren’t flexible, there may be competitors eager to land your business with more favorable repayment terms.
Tip: Always make sure any negotiated extensions are reflected in the payment history shared with commercial credit bureaus, so they don’t negatively impact your business credit history.
2. Get financing
Although many small business lenders have pulled back in recent months, healthcare remains one industry where lenders are still making loans. Some lenders specializing in healthcare financing are eager to work with new borrowers as well as existing customers. “We’re seeing lenders willing to lend into all types of healthcare businesses, including dentists, chiropractors, medical supply, pharmaceutical, manufacturers, etc.” says Edward DeAngelis, head of finance management at Nav.
3. Work with your current lenders
Similar to vendors, your lenders don’t want your business loans to wind up in default. A number of lenders have offered small business loan deferrals — some on a proactive basis and others on a case-by-case basis. Although industry reports indicate deferral requests are slowing down, if you haven’t requested one and need payment relief, reach out to your lender before you fall behind.
In addition, if you have an SBA loan, you may be eligible for debt relief:
- SBA 7(a) Loans: lenders may defer payments for 90 days or up to six months (depending on whether the loan has been sold on the secondary market).
- SBA 504 Loans: lenders may defer up to six cumulative monthly payments or 20% of the original loan amount, whichever is less.
- SBA Microloans: microloan intermediaries may make deferments for up to six months but deferment may not cause the life of the microloan to extend beyond the maximum six year maturity.
Understand, though, that restructuring a loan may affect your ability to get other financing, though some lenders are offering flexibility here due to the current economic conditions.
4. Tap credit cards
Credit cards are the second most commonly used form of financing, with 53% of business owners reporting they use them on a regular basis, according to the Fed’s SBCS. While racking up debt in a crisis can be risky, careful use of credit cards can provide much-needed help with cash flow.
At a minimum a credit card can give you an additional month or two of float (depending on when you time purchases). If you do need to carry a balance, a credit card may be cheaper than other forms of quick financing such as merchant cash advances. Just keep in mind that business credit card issuers will often raise your interest rate if you are even a day late on payments. To protect yourself, set up autopay to make sure the minimum payment is paid on time each month.
5. Consider bankruptcy
Although often considered a last resort, bankruptcy can be an effective approach to restructuring debt or winding down a business. In particular, businesses are beginning to take advantage of a Chapter 11, subchapter 5, a new form of bankruptcy Congress enacted in 2019 under the Small Business Reorganization Act (SBRA). It is designed to streamline the restructuring process for businesses with less than $2,725,625 million in debt. (Note the CARES Act (Section 1113) raised the limit under the SBRA to $7.5 million in debt, provided that 50% or more of the business debts arise from business or commercial activities. That extension is in effect for one year after the CARES Act was enacted on March 27, 2020.)
Consulting a bankruptcy attorney with experience helping small businesses may help you understand your options if you cannot meet your business obligations.
About the Author: Gerri Detweiler
Gerri’s been guiding individuals through the confusing world of finance and credit for 20+ years. She is the author or coauthor of five books, including her most recent, Finance Your Own Business: Get on the Financing Fast Track. Today, Gerri serves as the Education Director for Nav, an online platform that matches small business owners to their best financing options and gives free access to personal and business credit scores.