Financing your Small Business in Times of Crisis

While we normally write about upbeat topics on 305Startup like small business motivation, but in the recent period there is, unfortunately nothing upbeat we can say about being a small business owner unless you are selling masks or ventilators. 

If you have been living under a rock, then Coronavirus is a global pandemic started in China that has been expanded globally and is impacting the daily lives and as such, businesses, under the globe. If you haven’t heard of COV-19 by now, you should REALLY tune into the news, that is imperative for a business owner.

As a result of the pandemic, small businesses are suffering massive downswings in sales, and hence, in available cashflow. If we use a simple and widely used of thumb – small businesses in the USA have 2 weeks of cashflow reserves before they run into serious trouble, and stay-at-home orders have been issued in most states more than 3 weeks ago. As a result, surveys are showing businesses are already suffering, some on the brink of collapse.

It goes beyond supply lines being hit, no customers in stores, and no real demand for the majority of products; it’s a snowball that is current rolling down upon small business owners straight from the top of the mountain. Airline companies were the first to hit, but then their problems became those of the oil industry which is heavily dependent on movement of aircraft and vehicles in order to have any demand. Even all-online companies such as google can be severely hit at some point of this, as businesses will eventually taper down their ad expenses.

For every big company going into trouble, or if this lingers on for more – there would be 100 small businesses going under. There are small businesses supporting airlines in every aspect. There are small companies providing services to airports. There are sole traders working as Uber drivers who have closer to zero work right now (if they are even allowed to go and work, in most cases, they don’t).

To stop the bleeding – governments around the world announced special grants or low-interest financing  In Australia they call it the SME Loan Guarantee Program and in the USA the Paycheck Protection Program. The American one is a more aggressive bailout that forgives all payroll expenses in this period, while the SME Loan Guarantee is an incentive for lenders and banks to lend money to small businesses by providing a guarantee for a part of it.

The problem with the above programs is that as effective as they prove to be, small businesses, at the end of the day, will carry on even MORE debt than they did before, and would have to operate and be profitable enough to repay at least a part of the loan in a timely manner. The business environment AC (After Corona) is still unknown and is potentially going to take a lot longer to recover than the V shaped recovery economists were predicting last month.

Being a small business owner in times like this is painful. It is particularly painful that while small businesses will have to carry more debt, bigger corporations are getting bailed out. Why isn’t government financing focusing first and foremost on the bread and butter of the all economies including the GREAT USA one?

Things will eventually go back into a certain normality in the sense people will be buying again, but by then, we be scarred from all the galling.