Financial

Funding Virus Survival and More

By Mark E. Battersby / Published October 2020

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, every pressure cleaning business owner and manager should under-stand the many resources available to help with that recovery.

     The Coronavirus Aid, Relief, and Economic Security (CARES) Act lifted the Tax Cuts and Jobs Act (TCJA) restriction that limited the deduction of business interest to 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 pressure washing businesses, the CARES Act specifically earmarked funds for businesses and other eligible applicants, with a major portion coming from the Payroll Protection Program (PPP).

PPP Loans and Forgiveness

     Overseen by the U.S. Small Busi-ness 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 October 31, 2020, suggesting a deadline.

Beyond the PPP

     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 to small businesses that have suffered major issues related to a disaster. These loans can be repaid over a 30-year period and carry an interest rate that won’t exceed four 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.

More Than A Pretty Face

     In addition to their low cost, SBA-guaranteed loans have long provided a way out of damaging financial situations. The SBA’s guaranteed lower interest rates and longer payback periods mean more money is available to the borrower for other business needs. While the actual terms depend on how the funds are to be used, several different SBA loan programs, each with their own advantages, restrictions, and limits, are offered in the following options:

• The most popular program is the SBA’s flagship 7(a) loan that provides working capital for a wide variety of uses. Topping out at $5 million, 7(a) loan guarantees are commonly used for acquiring land, purchasing equipment, or working capital. They require low down payments, offer flexible terms, and have affordable, variable interest rates.
• SBA Express Loan applications are responded to within 36 hours and can help extend a business’s credit line by providing up to $350,000 for up to a seven-year period, while guaranteeing only 50 percent.
• 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

     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 are funded, in part, through a partnership with the SBA. Less than half of an SBDC’s funding comes from the SBA, with the remaining portion coming from Congress, state funding, donations, grants, and corporate sponsorships.

The Federal Reserve

     The Federal Reserve’s Main Street Lending Program is providing up to $600 billion in loans to small and medium-sized businesses. Designed to help businesses and professional practices in need of funding 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.

State and Local Funding

     Most state and local programs, both those aimed at attracting or retaining workers and recovery from the pandemic, offer tax breaks and/or small grants that do not have to be repaid. With many small businesses impacted by the coronavirus pandemic, many 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.

Banking As Lenders

     It is all too easy for pressure cleaning business owners and managers to overlook their bank
and how important that banking relationship can be, as many discovered when seeking PPP funding. Banks offer an array of programs to help customers affected by the pandemic.

     Of course, bank loans continue to dominate financing for small and mid-size businesses in need of capital. After all, proper use of small business loans can consolidate debt, provide needed capital, and allow for expansion and aid in the recovery process. But don’t overlook banks funding from other financial institutions such as the following:

• 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 CDFI financial institutions.
• JP Morgan Chase pledged $50 million to help businesses, non-profits, and other organizations during the crises. Of the $50 million, $8 million was specifically reserved for “small businesses vulnerable to significant economic hardships.”

Alternative Funding

     Financial institutions are increasing the digitized services they offer while the financial marketplace competes with alternative offerings. Business lending is becoming a big business, with hundreds of millions of dollars raised from unique “platforms” such as crowdfunding, peer-to-peer lending, and marketplace lending.

     So called “digital transactions” involve constantly evolving methods where financial technology (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. FinTech-related funding vehicles include the following platforms:

• Crowdfunding is becoming a popular alternative source of financing, with some pressure washing businesses capitalizing on it. The Securities and Exchange Commission (SEC) now allows contractors, other businesses, and even first-time start-ups 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 under- writing processes and, although remaining largely undefined, encompasses lenders that make loans to higher-risk, lower-income borrowers.

Other Resources

• The Save Small Business Fund created by the U.S. Chamber of Commerce offers grants of $5,000 to provide short-term relief. Those qualifying must have between 3 and 20 employees, be located in an economically vulnerable community, and be facing 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 funds to help care for employees or pay ongoing business expenses.

     Every pressure cleaning business owner should be keeping a close eye on upcoming legislation and be prepared to take advantage of every new funding program. Congress is considering another bailout bill and the SBA is constantly upgrading and refining its programs, while banks and other financial institutions, whether online or brick-and-mortar, continue to offer assistance to their customers.