This episode of the Sage Advice podcast features The New York Times and The Washington Post’s Gene Marks, CPA, who is also a regular contributor for Forbes Inc. Magazine, Entrepreneur Magazine and The Guardian. Gene has written five books on business management, specifically geared towards small and medium-sized companies.
Below is an edited transcript of our interview.
What should small businesses pay attention to as a result of COVID-19 and legislation in Washington?
Gene Marks: For starters, it is [small business’] job to have cash in the bank. We have to conserve cash, manage cash, and make our way through this. When I talk to my clients, we are all in agreement that this is a short-term thing. It may be a few months, but we’re not talking about a 2009 recession that could go on for two years. We do all expect to get back to work and some people are expecting things to be even bigger and boom once consumers are unleashed again. We have to be ready for that.
There were a couple of relief bills that were passed earlier in March, which are now set up and ready to go in April. There’s plenty of places to get cash if you’re a small business.
The first and biggest one is from the SBA, the Small Business Administration. If you’re a small business go to sba.gov and look at the different programs that they have now have in place, specifically geared towards the coronavirus pandemic.
The first program you want to take a hard look at is the Economic Injury Disaster Loan program. This is a low interest loan to small businesses, anybody under 500 employees that you can use for basically anything to get through this pandemic. You can borrow up to $2 million, the interest rates are very low, about 2.75% annually for a nonprofit and 3.75% for a for-profit, with terms up to 30 years to pay it back.
This is not the typical loan that the SBA does, which typically guarantees loans given by member banks. This is issued directly from the Small Business Administration. It’s an existing program that is usually directed towards businesses and individuals in disaster areas like floods, hurricanes and tornadoes. They are now including the coronavirus pandemic as part of it, which means that you apply directly to the SBA. There’s less bureaucracy, less red tape, and less time to wait to get your money. You will get your money much, much quicker if you go through [the SBA].
Number two is the Small Business Administration and the big stimulus relief bill that was passed at the end of March. This bill is offering some free money to small business owners. This is the section seven loan program, which is done through the banks. So, [small businesses] need to find a member bank of the SBA or in other words, a bank that gives SBA-backed loans.
If you’re listening to this and it’s sometime in April, your banker has now been educated on this program. The bank will go through their normal approval procedures and they can give you money for operating expenses and payroll.
When it comes to payroll, you can get forgiveness for the portion of the loan that you used to cover payroll if you keep your people on payroll through June 30. This means you can receive this loan from a bank guaranteed by the SBA and use this money for your payroll for April, May, and June. Then you can get the loan forgiven, meaning the government just paid your payroll for a three-month period. I strongly recommend that [small businesses] look into it. By the way, it will cover paid time off as well. It will also cover business owner’s payroll; it’s just maxed at $100,000 per employee. Go and get money from the Small Business Administration through any one of those two programs.
What ways can businesses tap into loan programs from their state governments?
Gene Marks: Another area for small businesses to explore is to go to your state. A number of states and cities are putting together relief funds and loan programs for their local businesses. So, this is another area that you can go to look for money directly from your local your local states and get funding that way. And that can all be in addition with the loans from the SBA.
What about taxes?
Gene Marks: They’ve extended the tax deadline until July 15 and you don’t have to pay in all of your 2019 taxes until then, but if you think you’re owed a refund, then file your taxes right away. The minute you file them, the clock starts ticking and it generally takes 21 days to receive that refund.
To recap so far, go to the SBA for the emergency, 30-year payback disaster loan. Go to an SBA bank for a loan to cover your payroll. Go to your state and local cities like New York, LA, San Francisco, state of California because they’re putting together relief plans for small businesses.
And finally, taxes as well. You know, if you file if you’re expecting a refund, ignore that extension and file your taxes, so you can get your refund in the bank as quickly as possible. So those are four immediate ways to generate cash.
What does business recovery look like from something like this?
Gene Marks: I wrote a piece for The Hill in late March that got a lot of eyeballs and generated a lot of conversation. There will be a reset, there will be a recession. The economic numbers are horrible. The level of unemployment, the reduction in industrial production, confidence sales—there will be a recession. We’re going to see in the numbers that this quarter was affected, but this recession is not going to be like 2009.
In 2009, it was like the world was falling apart. The banking system was in trouble, financial infrastructure was down, and people didn’t know if they could get cash out of the ATM.
There’s been no structural damage to the financial system and no structural damage to companies here. So, it’s very different. The government has essentially forced businesses to shut down and forcing consumers to stay at home and not spend. Even Amazon delivery dates are pushed back, so people are not spending money even though they have the money to spend.
There’s plenty of capital available. Just in the past week, I had six clients tell me their banks reached out to them asking, is there anything they can do to help? Whereas in 2009, the bankers wouldn’t even pick up their phones. So, you’re right, there’s no physical damage. There’s no structural damage to the overall financial system. It’s like we turned the engine off the car and we’re letting it sit in the garage for a few weeks, then we’ll turn it back on and pull back out. And I really think that’s what’s going to happen. So, we will have to wait and see.
What opportunities should businesses seek that didn’t exist before?
Gene Marks: There’s a lot of different marketing businesses can do. Rather than taking advantage of the opportunities, I think they need to ask what lessons did we learn? We’re going to hear about some businesses that not only struggled but went out of business and I sympathize with businesses in that situation.
I have a lot of clients that have been around for decades and they’ve seen bad stuff. Their parents operated businesses during wars. We’ve been through many recessions. The lessons are that you need to have enough available cash in your business. You need to learn the lesson that you can’t rely on one, one source for your products or one customer for your products. You have to have backups.
A lot of people learn that during the trade wars, and then that message really got nailed home when this broke out in China and their only source of supply was materials in China. I think people are going to come out of this saying we’re going to change the way we do business.
Working from home is another thing. I can’t tell you how many small business owners have resisted having their employees work from home. Now they’re forced to have them work from home, forced to have to use the cloud, and some of these cloud-based applications.
Now I’m seeing clients coming back to me saying, why didn’t you tell us to do this ten years ago? They’re learning that these types of technologies really do work, can be relied on, and are secure. They also see that they can use these for employees moving forward and use them as recruiting tools to attract younger employees, who have been demanding work from home and mobile applications. I think the opportunity is in the lessons that people are learning and I think it will make us all better business owners for years to come.
What’s the best way to contact you?
Gene Marks: Best ways on Twitter if you if you check me out @GeneMarks, Everything I write, I post there, and I get engaged and talk about all these different issues. You can ask me questions too.
Note: The information contained herein is for general guidance purposes only. It should not be taken for, nor is it intended as, legal advice. We would like to stress that there is no substitute for customers making their own detailed investigations or seeking their own legal advice if they are unsure about the implications of the CARES Act on their businesses.
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