As we continue to navigate these unprecedented times, KCBS Radio is getting the answers to your questions about the coronavirus pandemic. Every morning at 9:20 a.m. Monday-Friday we're doing an "Ask An Expert" segment with a focus on a different aspect of this situation each day.
Today we're talking about options for small businesses, the people who own them and the people who work for them with Sarah Razavi, CEO of Working Solutions, a nonprofit community development financial institution that supports small businesses here in the Bay Area.
Let's start with where we stand. And even as we go on the air with this, there's word that there is agreement in principle on some replenishment of this much talked about loan program for small businesses. But they're not going to have final approval of this until Thursday. The well ran dry a week before that and a lot of small business owners are thinking, “what do we do now”?
It's been a tough time for many small businesses, as you know, and especially in the nine Bay Area region. It's been tough since before officially shelter in place. So what we know is many small businesses tend to have very limited cash flow and when they do have the cash available, at most we're talking about two to four weeks.
So many of our small businesses were able to hold on. They were able to pivot as best as they could. They had, you know, delivery curbside and a lot more online. But things are getting a lot tighter and the opportunities available for small businesses through the federal government, as you just spoke to, while many were able to access them, there's still a much higher need than there is supply,
And that's certainly some businesses that can pivot. If you're a restaurant, maybe you become a takeout joint and you can keep the fires burning, so to speak. But some businesses under the shelter in place rules can't operate at all.
Exactly. We've got in our portfolio as a micro lender, we have businesses who are touch-based, such as salons and gyms, where the intent is really to be in proximity with each other. Whether you're cutting hair or waxing, beauty, etc. there's no way to pivot out of that. And we know that some businesses have tried, you know, they go into a new line of business just to keep some doors open just to keep money coming in for their families.
So whether you were providing salon services and now you might providing some sort of protective gear, we know our small businesses are extremely resilient. They are entrepreneurs and the idea of the American dream that runs so strong in so many families, both who have been here for many generations and of course our immigrant communities, that people really want to make their small businesses work.
As a microlender we're the first to believe in a lot of these small businesses for their first line of support as a creditor. And even if a business failed, so many of our businesses have been able to repay. Over time, we've had 95% repayment rate. That isn't just because they had the best business plan, but it's because entrepreneurs really want to succeed. And it's that gusto, that energy that we continue to be impressed by as their lender. We are trying to make this as supportive for everybody but it is absolutely, extremely hard. And it's not for lack of trying. Folks are definitely trying their best.
So before we get to any specific questions, would you mind sketching out for us what the dimensions of this much talked about federal government rescue program were for small business?
Sure. The marquee element of it, of course, is the Paycheck Protection Program. This is part of the SBA in consultation with the Department of Treasury. There was capital set aside and as of April 15th, about 1.3 million loans have been approved for a total of almost $300 billion. So the Paycheck Protection Program really was able to be deployed very, very quickly. There were certainly some hiccups, but ultimately, again, with $300 billion, folks had expected that that would run short and it has.
Now, the SBA was also tasked with some other loan products - the Small Business Administration. They had the EIDL program, the Economic Injury Disaster Loan, which actually rolls out at any time there are disasters. The difference this time was that in the state of emergency, things moved a little bit quicker and noting that so that governors could allocate for their counties, etc. That was then coupled with some $10,000 advances, as part of what is called the EIDL, Economic Injury Disaster Loan. And then ultimately, the SBA. Anybody who's been a borrower of the SBA capital prior to all of this, the SBA has provided a really generous deferment program as well.
So there have been multiple supports, and another layer to all of this with the CARES legislation that passed recently that was all within, was also unemployment benefits. And we know again as a small business lender and those working with entrepreneurs, many of whom are sole proprietors, are the only owner and employee in their business, is that a lot of the time small businesses depend on multiple sources of income. So that CARES package includes layers of healthcare, child care benefits as well as small business loans. These are all integrated together to make up how many Americans really manage their finances. It's not a single source that's going to be the perfect remedy.
Okay, let's get to some specific questions. These come in from our listeners via the email address, askus@kcbsradio.com.
We own a small business we applied for the $10,000 grant - they’re probably now about this Emergency Impact Disaster Loan - and never heard back. We also applied for the Paycheck Protection Program through our bank Wells Fargo and never heard anything. Is there anything we can do to get help if the government doesn’t approve more financial aid?
First of all just to credit this small business owner, there's been so much confusion and the deployment of the capital has not been very clear.
The Economic Injury Disaster Loans - or the EIDL - with the $10,000 advance, that was administered directly through the SBA. So small businesses like the one you just mentioned would have to go through the SBA website, upload their information and be in contact directly with the SBA. Now, the SBA has done in four weeks more than they usually do in a single year. They weren't designed for this level of volume. So they have had some hiccups in being able to be responsive to the clients who were applying directly for their capital.
So to this business owner, I'd say, I think that once the upload has happened, they will be in touch with you. They're just far behind in their capacity to respond in quick time.
As far as the Paycheck Protection Program, that was to be administered by select financial institutions. And so, for the most part, it was large banks that provided a certain type of SBA loan product that's called a 7a loan. And then once there was such a high demand, that was opened up to additional financial institutions including a number of fintechs that provide services like point of sale, such as Square, or provide some products for accounting, like Intuit, and so on. With each of these entities, you're applying with that provider being their existing client. So in this case, your bank was Wells Fargo; they have a lot of information already about your business that would help the application and verification process. If you haven't heard from your bank or your other financial institution that you applied through, it really is a matter of volume. We recommend continuing to try to reach out to your provider and see about getting the help you need.
If you are planning to pivot out and try somebody else you certainly have that prerogative. But most of the institutions who will be open to working with you are the ones who are your existing provider. The level of volume here and the level of confusion I really can't stress enough, but at the same time, people are trying their best. And I certainly know from our conversations with many small business owners, unfortunately, business owners have had to apply multiple times. I don't think that's the best idea. I think trying to reach out multiple times to your provider, to your banker is the best strategy.
Okay, next question. Is rental property - renting out an apartment - a small business? If so, what coverage? What sort of benefits may be available?
So a lot of these loans actually include working capital and expenses, which would include rent payments. For most small business owners who are also employers - because there are essentially two types of small businesses, those that are self employed and those that have a payroll and a lot of fixed costs including their rent - a lot of these loans are intended to be used for that working capital.
Now, many big area counties and cities have put in some moratoriums on rent. Those are, of course not rent forgiveness, they are just in essence, delaying the rent payments. But we would encourage you to reach out to your landlord and see if there is any capacity in rent payment delays that they can honor. Then, once these loans have kicked in or loans from other providers - we at Working Solutions are not a PPP lender, we’re not an EIDL lender for the various reasons I just spoke to, but we are a lender. And as you're looking for working capital, there may be other loan options and other capital options available to you.
I work for a small business. What if I filed for unemployment? Would that affect my boss’ claim for this money under the Paycheck Protection Program?
Unfortunately, I'm not an expert on the HR side of the employment rights. I would highly recommend reaching out to any human resource service to answer some of the unemployment questions. But generally many small businesses and small business owners have intentionally either laid off or furloughed their staff so that their staff can reach into the unemployment benefits.
The PPP program supports both keeping employees on and also if you rehire them in the period of time that you have the capital. So I don't think you should hold out on unemployment simply because the business owner may not be able to apply.
Okay, and this one sort of the inverse of that question from the business owners: what happens to the loan forgiveness if I do end up having to lay people off after all?
The intent of these loans is that businesses hold on to their employees. But the reality is, we're all learning as we go and the best intentions are just that, they are intentions. So every business owner has to make their best judgment.
With the PPP, again if there is a rehire element you may be considered for the forgiveness. And ultimately, the loan has a forgiveness element but that's not the only part. It actually is a favorable term. And if for any reason the portion that is forgivable is not forgiven because you weren't able to retain every single team member or two to the level that is approved, it's still a very favorable loan. And I would encourage people to still apply for it when it becomes available again.
I have a small business with 11 full time employees. I’ve been fortunate to keep most of them working, but they'll be out of work soon. I applied through Bank of America the first day the program was opened and was called by the bank a few days later saying my application was being forwarded to the SBA. But then funding ran out. So I don't know where I stand in the process now and the bank can't tell me either.
These are great questions because they reflect what many people are experiencing. There were a number of businesses who were able to get a loan number and knew they were in the queue.
Once you have a loan number, it’s telling you that you are in process and most of these, once in process, are approved. Without that, there simply is a long queue of people waiting to be reviewed. And so if you don't have a loan number, the likelihood is that you're still in wait position. And so I would recommend that once additional dollars are put into the program, to reach out to your bank again and see where your status is. I want to speak to the many lenders who have been doing their best to be responsive to the high need. They are also relaying as much information as they have.
So a lot of this comes down to patience, and that's not an easy answer to hear. But there's a lot of waiting that has to happen.
Let me ask you around the edge of this: if there's another $500 billion in aid for small business, hospitals and testing, not all of it's going to go into this Paycheck Protection Program. Is that going to be enough?
I think many experts are feeling this won't be, and I’d argue ever. Even if we talk about the eras that we often compare it to, whether it be the Great Depression, whether it be the emergencies that we have seen, the natural disasters that we've seen or even the 2008 downturn, the level and scope of this is broader than many have experienced.
And I think what our Congress and our policy makers are recognizing is that there isn't going to be a single method to support us through this. It will be a collective energy around new jobs, new considerations of new contracts, new ways that government can begin to inject capital into small businesses and into our communities. We at Working Solutions have worked with our local municipalities to even talk beyond just debts but also about grants. What do our small businesses need right away? What do our nonprofits need right away to keep the doors open? But also to recognize that this is gonna again take multiple types of responses. And when we do come back, how we come back, it's gonna look slightly different than what we all expected when we stepped into this.
Before we let you go, you mentioned grants and that was another topic somebody tipped us off to. Facebook today, for example, opened applications for a $100 million grant program. What in general should a small business owner have ready and expect when applying for a grant as opposed to one of these government loans?
Right. I think with a lot of the resources that are available, because the demand is so high a lot of those who are providing this capital need some sort of verification, and each of them have a criteria. So in Amazon's case, for example - not in California but up in Seattle - they really were focused on anybody who was within their vicinity. Facebook is focused on a specific number of regions initially as they provide their grants through 30 countries globally. So each of them are gonna have different criterias. When we work with municipalities, often they're interested in the entrepreneur’s income level, trying hardest to serve those who are hardest to serve. Oftentimes you will probably have to have some form of verification of your income or revenue that has been impacted or that you are of a certain level that needs additional support.