To say the economy is hurting because of COVID-19 would be a vast understatement. With millions out of work and small businesses across the country struggling to remain afloat, we’re all facing an uncertain future. For some businesses, the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) loan initiatives have provided a needed financial lifeline. However, not all businesses are able to take advantage of these programs.
With this article, we’re going to explore alternatives to PPP & EIDL loans and examine how these options can benefit your small business during these trying times.
Why Small Businesses Are Looking For Alternatives To PPP & EIDL Funding
Taken together, the PPP and EIDL programs have distributed a massive amount of funding to struggling businesses in the wake of the coronavirus pandemic. However, many businesses have been unable to secure funding from these programs despite applying when directed and meeting all the relevant qualifications. Other businesses, having received funds from these programs, have discovered that the funding they received was far less than the amount for which they applied. Still other businesses either haven’t met the qualifications or have avoided applying for PPP funds due to the restrictions placed on how the funds must be spent in order for the loan to be forgiven.
Whatever the reason, there are businesses out there in need of funding that have not been served by the PPP or EIDL programs. That’s why we’ve set out to highlight other lending options — both public and private — that are currently available to small businesses.
The Best Alternatives To EIDL & PPP Loans
Let’s discuss the primary financing alternatives to the PPP & EIDL programs.
SBA 7(a) Loans
The 7(a) loan program is the flagship program of the Small Business Administration (SBA). These loans can be used for many business purposes, including business expansion, working capital, and equipment, inventory, and real estate purchasing. With these loans, up to 85% of the loan is backed by the SBA, thus mitigating the risk to the lender and giving small businesses a chance to qualify for a loan that, under ordinary circumstances, they wouldn’t be eligible for.
There are nine different types of SBA loans to choose from. Our guide to SBA 7(a) loans details these different loan types, the business purposes for which they are intended, and the types of businesses that qualify for each loan type.
SBA 504 Loans
SBA 504 loans are more selective than 7(a) loans, but for the right business, these loans can be an ideal option for financing the purchase of fixed assets like real estate. These loans offer 90% financing and offer lower down payments than do traditional loans. While certainly not for every small business, these loans are a good option for small businesses with particular financing needs centered around purchasing or renovating land, buildings, and/or equipment.
Read our guide to SBA 504 loans to learn more.
Main Street Lending Program
The creation of the Main Street Lending Program was announced by the Federal Reserve in March 2020. While it bears some similarities to the PPP and EIDL programs in that it is intended to provide financial relief to small- and medium-sized businesses affected by the COVID-19 pandemic, it is a separate program with its own set of eligibility requirements.
Though the program is not yet active, it is expected to become active soon. Businesses seeking loans of at least $250,000 should take note of this new financing option. Check out our piece on the Main Street Lending Program for more information.
Community Development Financial Institutions
Community Development Financial Institutions, or CDFIs, are not-for-profit financial institutions that provide credit and financial services to disadvantaged areas and populations. Compared to loans from an average bank, a CDFI loan is typically easier to qualify for and carries a lower interest rate.
As part of their mission, these institutions often offer loan programs tailored for women and minority borrowers. Additionally,Â CDFIs are often willing to extend money to startups and incubator businesses that would otherwise struggle to get a business loan. If your business falls into any of these categories, look into the services of any CDFIs in your area.
While online lenders are typically more flexible in terms of their lending policies than the big banks, it’s true that now is not an ideal time to be seeking a small business loan from an online lender. Most such lenders are not currently offering loans due to the adverse currents buffeting the economy. However, there are a few exceptions. I’ll detail them in the next section.
Where To Find Alternative Funding
Now that I’ve described the types of small business funding that remain available, let’s get into specifics. Here’s where you can actually access funding right now.
We’re choosing to highlight Fundera here because we’ve confirmed that Fundera is currently open for normal funding, unlike most other online lenders.
Fundera does not originate loans; rather, it aggregates loan offers from its funding partners to present you with the business loans you’re most likely to qualify for. Through these funding partners, Fundera offers the following loan types to small businesses:
Lines of credit
If your business stands to qualify for a CDFI loan, check out this CDFI locator website. You can filter your search by state, organization type, loan program, and more. Use it to connect with a CDFI in your area and ask about the funding options on offer.
While the PPP and EIDL programs are currently getting the lion’s share of attention in terms of SBA-backed loans, the SBA’s 7(a) and 504 loans are still being offered. These loans aren’t offered by the SBA itself, however — they are instead offered by private lenders that partner with the SBA to offer government-backed loans.
To see the lenders that, by the SBA’s own estimation, are the most active providers of SBA loans, read our article, The Best SBA Lenders For Small Businesses, then reach out to one or more of the organizations listed.
Go Out & Get Funded
We’re in a tough spot right now. Our world is beset by crisis and uncertainty, and given the fact that nobody could have predicted the year we’ve had, no one can say with any confidence what awaits us all in the years to come. However, our response to all this can’t be to forfeit and withdraw. People still have needs that must be met. Bills still need to be paid. Children still need to be provided for. Given that commerce still needs to happen and businesses still need to provide goods and services, there will remain a need for business loans.
We’re going to continue to keep track of which lenders are reopening their lending programs. As we do so, we’ll be updating the above list of business funders to reflect what is currently available. If you’re looking to fund your business and you’re looking for more options than the ones listed here, keep checking this page for the latest updates!
The post Donât Want (Or Were Denied) An EIDL Or PPP Loan? Here Are Your Best Small Business Loan Alternatives appeared first on Merchant Maverick.
Businesses that rely on heavy equipment to carry out their day-to-day operations face some serious costs when it comes to acquiring, upgrading, or replacing their equipment. These large machines can be difficult to finance out of pocket, and even if you can, it may not be the most pragmatic way to do so.
Below, we’ll dive into some of the heavy equipment financing basics and cover what you should know about small business heavy equipment loans and leases.
What Is Heavy Equipment Financing?
Heavy equipment financing includes loans and leases used to acquire specialized vehicles, such as dump trucks, backhoes, and bulldozers, that are used in construction, excavation, or timber projects.
There are several different ways to go about financing heavy equipment, depending on whether you’d prefer to own the heavy equipment or simply operate it for a set period. Each has its advantages and disadvantages.
What Is Heavy Equipment?
While the phrase “heavy equipment” is most often associated with construction projects, it encompasses a wide variety of specialized vehicles controlled by licensed operators. Common examples of heavy equipment include:
Tunnel boring machines
Heavy Equipment Loans VS Leases
The most commons types of heavy equipment financing are loans and leases. At a glance, they share a lot of traits in common: term lengths, interest rates, monthly payments. They do, however, have different rationales and rules governing them.
An equipment loan is a term loan used, as you might guess, to buy equipment. Most equipment loans last between three to seven years, with some lasting as long as 10. In most cases, you’ll be expected to make a down payment of somewhere around 15% of the cost of the equipment. Relative to leases, loans usually have better rates but cover a smaller percentage of the total costs.
An equipment lease is used to buy or rent equipment. Leases themselves fall into two broad categories: capital leases and operating leases.
Capital leases are used to buy equipment and serve many of the same functions as an equipment loan. They don’t typically require a down payment and often cover 100% of the costs, with terms typically ranging from three to five years. Heavy equipment capital leases frequently come in the form of $1 buyout leases or 10% purchase option leases (10% PUT). This means that, at the end of your leasing term, you’ll have the option to buy your equipment for the amount specified: $1 in the case of $1 buyouts, and 10% of the equipment’s cost for a 10% PUT. Why so low? Well, a capital lease assumes you’re going to buy the equipment. In fact, the equipment is considered an asset for tax purposes. Capital leases are appropriate for equipment that doesn’t go obsolete quickly and slowly depreciates.
Operating leases are similar to capital leases but with a few key differences. Operating leases are usually for a shorter period, generally two years or less. At the end of the leasing term, you’ll have the option to purchase the equipment (typically for fair market value, which is why you’ll sometimes see these leases called fair market value leases), return it, or renew your lease. Depending on the exact terms of your lease, it may count as an asset or a business expense.
How Heavy Equipment Loans & Leases Work
Heavy equipment loans and leases both work a little differently. As I described above, both feature monthly installment payments and interest. Where loans have down payments, which are paid at the beginning of the loan, leases have residuals, which are paid at the end of the lease. Both residuals and down payments can vary based upon the type of agreement you sign with your financer. In the case of residuals, they may be optional if you choose to return your equipment or renew your lease.
Note that heavy equipment loans and leases aren’t substantially different than other types of equipment financing. The main difference is that you’re dealing with more specialized and expensive equipment than most other industries. That means you’ll need to work with a funder who is willing and able to extend you both the amount of money you need to acquire the equipment and a suitable amount of time to pay it off if you’re buying it.
Used VS New Equipment
Depending on the type of heavy equipment you’re looking for, you may have the option to finance used equipment as well as new. Used equipment can often fall into the hands of equipment lessors (companies offering leases) when the equipment is returned to them rather than purchased. These companies may simply provide operating leases for businesses who will use the equipment for a short time and then return it.
If you’re looking to buy used heavy equipment from a third party, and you need financing, make sure your financer can work with the reseller in question.
Expected Terms & Fees
Generally speaking, the term length of your heavy equipment loan or lease depends on two factors: whether you’re renting or buying, and how long the useful life of the equipment is. It’s rare for a loan or lease to have a term length that’s longer than the equipment’s expected useful lifespan. In practice, you’re probably looking at somewhere around the five-year mark for most heavy equipment financing.
Interest rates on loans and leases can and do vary widely, depending on your financer and your fitness as a borrower/lessee. Interest rates for heavy equipment usually start in the high single digits, with the ceiling somewhere just short of 30%.
Loans and leases can also come with all manner of supplemental fees, or none at all. If you can help it, you should always try to deal with financers who will charge you the least amount of these fees as possible. A standard fee for a loan is the origination fee. This is an amount deducted from the money you receive from your loan rather than a fee you pay directly. Leases, on the other hand, sometimes have administration fees that are charged to “keep your account active.” These may be annual or month-to-month.
Additionally, you can expect to pay late fees if you fall behind on your payments.
What About Collateral?
So that multiton vehicle you’re financing? It’s worth quite a bit, and your financer will either have a lien on it or own the title to it, depending on the type of financing you receive. The nice thing about equipment financing is that the equipment you’re financing is the collateral. If you default on your loan or lease, the financer can simply repossess the equipment.
That said, if you have particularly bad credit, you may also have to make a larger loan down payment or pay a month of your lease in advance.
How The Application Process Works
With any kind of equipment financing, it’s usually a good idea to have the specific make and model of equipment as well as a vendor/seller in mind before you apply to help expedite the process.
If you’re going through a bank, credit union, or captive lessor, you’ll probably need to apply on-site. Online financers, as you might expect, will generally offer the ability to apply through their websites. Both entities will be looking for the following information:
Time In Business: Has your business been around long enough to be stable?
Personal Credit Score: How much of your credit are you using, and do you have a history of paying it back on time?
Debt-To-Revenue Ratios: Are you likely to have the resources to be able to pay your loan and lease?
Your financer will attempt to ascertain all of the above by asking for corroborating documents. You can save yourself some time and grief by having these documents available when you apply:
Personal identification/driver’s license
Three to six months of bank statements
Tax returns/financial statements
A quote from your equipment vendor
Some financers may ask for additional information.
After you’ve submitted your information, the financer will consider your application and likely do a soft or hard pull on your credit. Equipment financing tends to be on the quicker side as bank financing goes, but with more substantial investments such as heavy equipment, you may be looking at a lead time as long as weeks to a month or two. If you go with an online lender, the process will be much faster — usually measured in days — though you’ll probably end up with a higher rate than you would by going through a bank.
If you’re approved, the financer will usually directly pay the vendor, though, in some less common cases, you may receive the money directly to buy the equipment.
Are You Qualified For Heavy Equipment Financing & Is It Right For Your Business?
Heavy equipment isn’t cheap. Even with generous financing, you’re looking at a significant financial burden. Consider the investment you’re making and to what degree it will directly contribute to your revenue. Does it make more sense to rent or to own?
To qualify for heavy equipment financing, you’ll want to have a credit score of at least 620, preferably higher. Leases, which don’t involve down payments, usually have a higher credit requirement than a comparable loan. That said, don’t assume that you can’t get financing even if your credit is under 620; there may be high-risk lenders willing to work with you…for a price.
Is Heavy Equipment Financing Not Right For You? Your Other Options
Do you still need heavy equipment, but don’t think a heavy equipment loan or lease can get you there? Check our list of top equipment financers to make sure. If you don’t find what you’re looking for there, you still have other options.
Since you’re dealing with expensive items with long utility lifespans, you may want to consider other kinds of long-term loans. In particular, SBA 7(a) and 504 loans can provide the high borrowing amounts and long term lengths you need. Both can be used to purchase equipment.
Looking to finance other types of equipment and landing here accidentally? Maybe you’re looking to finance laundromat equipment or tech equipment?
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In response to criticisms regarding the Paycheck Protection Program, the government has introduced and passed the PPP Flexibility Act of 2020. This amendment aims to alleviate some concerns regarding the business aid program by extending due dates and allowing wider use of the funds.
The bipartisan bill was passed by the Senate without objection on June 3 after it flew through the House the week prior with a 417-1 vote. On June 5, the president signed the bill into law. Now the SBA and Treasury must interpret and implement the new rules for business owners who received loans via the program.
Lawmakers introduced the PPP under the CARES Act in March as a way to help businesses financially hurt by the COVID-19 pandemic. However, the program included what some business owners and small business advocates considered stringent requirements — such as businesses being required to use 75% of their loans on their payroll — spurring Congress to introduce the Flexibility Act.
Let’s take a look below at what the PPP Flexibility Act changes — and what it does not — as well as how it might impact your business.
New PPP Forgiveness Rules
The PPP Flexibility Act, also dubbed H.R.7010, can be viewed in full on Congress’s website.
Here’s a look at a few highlights of how it updates PPP rules:
Borrowers now only need to use a minimum of 60% of their loan on payroll to qualify for forgiveness. The other 40% can be spent on other business expenses, which covers mortgage interest, utilities, and rent. Previously, the PPP required that at least 75% of the loan was spent on payroll, while only 25% was available for other uses.
Borrowers now have up to 24 months or until December 31, 2020 (whichever is first), to use their funds. There was an eight-week requirement before the Flexibility Act’s passage.
Businesses must rehire employees before the end of 2020 for full forgiveness. Previously, workers had to be rehired by June 30, 2020.
Businesses that fail to rehire employees by December 31, 2020, can avoid the penalty by meeting one of two “good faith” requirements: An inability to rehire those who were employees on February 15, 2020/an inability to hire similarly qualified individuals for empty positions by December 31, 2020, or an inability to return to the same level of business activity that the business functioned at on/before February 15, 2020.
Borrowers who receive PPP loans after the Flexibility Act’s enactment date have five years to repay non-forgiven loans. Loans made before the Flexibility Act only have two years. The first repayment can be deferred until six months after the SBA makes a determination on the loan’s forgiveness.
Borrowers must apply for loan forgiveness within 10 months after their covered period ends.
Employers can now receive the deferral of payroll taxes included in the CARES Act Section 2302, even if they have received PPP loan forgiveness.
PPP Flexibility Act Criticisms
Critics have noted that the PPP Flexibility Act does not address all the concerns related to the program. Among some remaining questions include doubts about the earliest date borrowers can start applying for forgiveness as well as issues over the uncertainty regarding the 60% payroll threshold. The new bill also hasn’t changed the PPP’s new applicant deadline of June 30, 2020.
Such qualms led to hesitation in the Senate over the bill’s passage. For instance, Sen. Susan Collins, R-Maine, worried that wording in the Flexibility Act implied borrowers might not receive any forgiveness if they fail to spend 60% of their loan on their payroll. She called such a strict limit a potential forgiveness “cliff” that differed from the PPP’s original ruling of proportional loan forgiveness if the payroll threshold is not met.
However, the SBA and Treasury made a joint statement on June 8, indicating borrowers who fail to use 60% on payroll would remain eligible for proportional loan forgiveness. This interpretation is in line with the initial PPP rules and nixes any possible forgiveness cliff.
Other objections came from Sen. Rod Johnson, R-Wisc., who penned a Wall Street Journal opinion piece arguing for “reforms that will prevent future funds from flowing to organizations that donât need them.”
On top of all those criticisms, the PPP itself remains a complicated beast. Besides the fact that the program proved to be a chaotic disaster when it came to approving applicants and shipping out loans, business owners may struggle with making repayments and receiving forgiveness. Without further action from Congress — be it scraping the program altogether for a more efficient option or making significant tweaks to the current program — we may see some deep economic woes in the future.
Is It Time For You To Apply For A PPP Loan?
If your business’s bank account is struggling and you haven’t sought out financial relief, you may be wondering if it’s time to apply for a PPP loan. These new rules will make it easier to both apply for a loan and give your business more freedom to use its loan. As such, it could be a great time for businesses previously uncertain about PPP forgiveness guidelines or concerned about how funds could be utilized.
On top of that, there are still plenty of PPP funds left in the tank. Based on recent numbers from the SBA, there is over $120 billion in funding left to distribute as of May 30. With just south of $660 billion designated for the PPP in two rounds of funding, there should still be plenty to go around for the remaining businesses that need monetary aid.
Keep in mind that the new applicant deadline for PPP loans remains June 30. As outlined in a bipartisan letter from several Congress members, “the SBA and participating
lenders will stop accepting and approving applications for PPP loans” on that date despite some initial confusion after the bill passed the House that the new applicant date would be extended until the end of 2020. That means you’ll need to decide about applying relatively quickly — it’s unclear if the program’s application date will get extended in the future.
Of course, only you know if it’s the right time to apply for a loan — every business is in a different situation, and the pandemic only complicates things. To help get you started, visit our guide to PPP loans. You can also check out Merchant Maverick’s coronavirus hub for more pandemic-related resources.
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Over the past week, countless individuals across the US have protested police brutality following the death of George Floyd while in custody of the Minneapolis Police Department. These protests, though sparked by the recent tragedy, have roots stemming from decades of civil inequality. Even though many of those demonstrating their First Amendment rights have engaged in peaceful protests, some individuals have reacted violently towards both public and private property.
It is far too soon to calculate the full brunt of the damage caused by violent riots, although initial reports indicate the destruction to be quite extensive. In Minneapolis alone — the heart of the now-national protests — several hundred businesses have been vandalized, looted, or otherwise harmed by fire, broken glass, or water.
Elsewhere, in cities such as Chicago and Los Angeles, business owners have had to plead and negotiate with those looking to damage and loot stores. No matter the exact extent, the total blow to businesses throughout the country is certainly astronomical.
In response to the rioting, some major retailers have backed the protests while downplaying the destruction to their stores. For instance, the department store giant Nordstrom stated in a press release that it can âfix the damage to [its] storesâ while adding that âwindows and merchandise can be replaced.â A few smaller businesses, such as a Bangladeshi-Indian restaurant in Minneapolis that lost its building to a riot-related, have also voiced support for the sometimes aggressive demonstrating.
This damage caused by rioting isn’t unprecedented — past riots in Los Angeles, Detroit, and Miami also caused heavy destruction. In those instances, governments and private organizations stepped up to aid local businesses. Unfortunately, such aid may not always be enough to heal local economic devastation — and especially so for those whose entire livelihood was tied up in businesses destroyed by a riot’s wake.
The History: How Violent Unrest Affects Local Businesses
The United States has had a long and complicated history with public protesting. The Boston Tea Party of 1773 was an organized and targeted protest that opposed the tyrannical reign Britain had over its New World colonies. The women’s suffrage movement picketed, paraded, and participated in other forms of demonstration in the early 20th century, encouraging the acceptance of a woman’s right to vote. Throughout the mid-20th century, civil rights protests helped break down racist laws.
It is not uncommon for violent rioting to accompany protesting, even if most participants are engaging peacefully. And while protesting has been shown as an effective agent of social change, violent forms of protest can inflict substantial economic wounds on local communities.
The 1967 riots in Detroit cost between $40 and $45 million (just over $300 million in today’s money) while the 1992 Los Angeles riots caused as much as $1 billion in damages. Riots born outside of civil unrest can be also pricey — the rioting that ensued after hockey’s Vancouver Canucks won the 2011 Stanley Cup damaged roughly 4 million Canadian dollars worth of property throughout downtown Vancouver.
On top of the immediate impact, it can take years for communities to recover. Five years after the 1992 riots, Los Angeles had an unemployment rate that was about 3 percentage points higher than the national average, based on a 1997 New York Times report. By 2002, the city had lost nearly $4 billion in taxable sales in the decade following the riots, according to a 2004 study published in the Urban Studies journal.
More recently, Ferguson, Mo. — home to rioting in 2014 — continued to have never-returned-to-businesses boarded up as late as 2019. The small city’s unemployment rate also sat at 5.5% in June 2019, which was over 2% higher than the Missouri state average.
Aid might also fail to reach the places that need it the most. For instance, an estimated $40 million in property was damaged during the Los Angeles-area Watts riots of 1965. However, the Small Business Administration only doled out 26 loans worth $400,000 to businesses impacted by those riots.
In the aftermath of the Detroit and Newark, N.J., riots that took place two years later, the SBA was a bit more generous, giving out $3.4 million in aid to affected businesses. Some small business owners still felt slighted, though. Edward Deeb, while representing a Detroit grocers association, argued in a 1968 Senate hearing that “the small businessman feels it unfair that only one side is being told, and that side is based on sensational charges designed to arouse and inflame a community.” Deeb further claimed that businesses in areas hit by rioting were discriminated against — insurance companies deemed these areas “high-risk” and so had increased insurance premiums for business owners.
Following the 1992 Los Angeles riots, some Korean-American business owners struggled with the English-language application forms for the SBA-issued disaster loans. Meanwhile, other owners felt “the system was designed to discourage them,” as a Los Angeles-based advertising executive told the Associated Press. All told, four months after the Los Angeles riots, only 1,400 merchants out of the roughly 10,000 businesses damaged or destroyed had received loan checks; thousands hadn’t gotten anything or simply didn’t complete the application process.
In some cases, other factors doom damaged businesses. According to the Cincinnati Enquirer, 32 of the 70 businesses that received city-made emergency loans defaulted on their loans five years after the 2001 Cincinnati riots. Business owners in the southwestern Ohio city told the paper that “aftershocks of the riots” and increased violent crime and panhandling made people feel unsafe or unwilling to go downtown — ultimately harming many of the local businesses impacted by the rioting.
There are still seeds of hope, however. Some businesses, such as a clothing boutique in Ferguson, are able to survive and thrive after receiving aid money. Additionally, it’s important to remember that the very real and justifiable anger of rioters can help further positive societal change. Those incited by Martin Luther King Jr.’s assassination hastened passage of the 1968 Fair Housing Act.
The Aid: Where Businesses Can Look For Riot Relief
The question of who pays for damage following riots is often a tricky one. Business owners generally have several avenues to pursue: insurance, government aid, and/or private support through loans or donations. Success in these avenues can vary wildly from business to business, however.
Insurance coverage for riot-related damage, in particular, will depend on the business. In some cases where landlords don’t require inventory or equipment insurance, policies may cover very little and business owners may be on the hook for losses and repairs. If you have property insurance, however, you should receive coverage for rioting and civil unrest.
As for government aid, the SBA operates a disaster loan program. In the past, disaster loans have been issued for businesses impacted by rioting, such as those damaged during the 2015 Baltimore riots.
To qualify for a disaster loan, your business will need to be located somewhere the SBA has declared a disaster area. To monitor currently declared disasters, visit the SBA website. At the time of writing, the SBA has yet to declare any disasters relating to the nationwide riots, but that may change as the situation progresses.
In some cases, the federal government has provided other support channels. For example, after the 1992 Los Angeles riots, the government issued a $600 million relief package that was made available for residents, landlords, and business owners through the Federal Home Loan Bank Board system.
Beyond federal assistance, local governments and banks have also been known to step in. The state of California handed out emergency bridge loans following the 1992 riots, while city and county governments proposed emergency loans to businesses after the Cincinnati’s 2001 riots. A special loan program for businesses hurt by those 2001 riots was also made available by a local bank and chamber of commerce.
Other local organizations can also provide aid to hurt businesses — the Ferguson clothing boutique mentioned above received $20,000 from Phi Beta Sigma, a local fraternity. More recently, the Lake Street Council, a Minneapolis-based small business advocate, has raised nearly $4 million in aid money for local businesses ravaged in the recent riots. With similar organizations also chipping in, it may behoove businesses suffering from riot-based damages to seek out non-government funded sources.
Some businesses have also found success using donation platforms like GoFundMe. Examples here include a Minneapolis bar that has already raised over $1 million after its building burned down during the recent riots. Meanwhile, a Vietnamese restaurant in Tampa, Fla., just met its $80,000 donation goal after its location had been ravaged by rioting.
The Wrench: COVID-19
Purely in economic terms, the riots come at a hard time for many small businesses. Scores of businesses have been affected by the economic turmoil churned out by the COVID-19 pandemic. According to a Facebook report, roughly 10% of small businesses surveyed don’t plan to reopen after facing financial struggles due to the coronavirus — a number that may only rise.
Because the SBA has struggled to provide adequate support during the pandemic, we don’t know how the federal government will react once the unrest settles down. It’s possible the SBA will indeed be able to help businesses hurt by the rioting through its disaster loan program. However, with the SBA currently processing record numbers due to businesses struggling from COVID-19, it’s possible that any riot-related relief will take longer than usual to flow out.
State and city governments are also facing economic woes thanks to COVID-19 forcing back tax due dates and dropping overall revenues. This could affect how much monetary aid local governments can provide to businesses in the coming weeks and months. Additionally, more unemployment claims will simply add more stress to already struggling unemployment departments.
The Action: What You Can Do To Help Your Business
We currently live in an unprecedented time where there are no easy answers. Between the looming pandemic and the civil unrest that has gripped the nation, many small businesses will have a difficult time rebuilding in the months and years to come.
If your business has been hit by rioting and looting, we recommend that you first reach out to your insurance provider. If you don’t have adequate coverage, be sure to keep an eye out for SBA action or aid planned by your local governments.
You can also look to local organizations that raise money for small businesses or set up your own donation fund through a service like GoFundMe. If all else fails, we urge you to tell your story to local news organizations or simply by sounding off in the comments below.
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Few businesses have quite the same relationship with their equipment as laundromats. Essentially, your equipment is almost the entire draw of your business. Customers will be regularly paying you to directly utilize your equipment, so it goes without saying that you want to spend a lot of time thinking about your equipment purchases.
If you’re thinking about starting your own laundromat and want to get a sense of how much the equipment will cost, where to buy it, and how to finance it, you’ve come to the right place. Read on for more information.
The Equipment You Need To Start A Laundromat (& How Much It Costs)
If you’ve been to a laundromat, you probably have a general idea of what types of equipment you’ll need to get your laundromat up and running. Nevertheless, let’s lay them all out to make sure we’re on the same page. You’ll need, at a minimum:
Commercial washers ($700 – $25,000 each)
Commercial dryers ($1,000 – $20,000 each)
A payment system
Coin-based ($100 – $200 per machine, $700-$1,200 per bill-to-coin changer)
Card-reader system ($40,000 – $80,000)
Water heating system ($15,000 – $40,000)
You’ll probably want:
Tables for folding ($60 – $600/each)
Seating ($30 and up/each)
Laundry carts ($50 – $80/each)
Vending machines for snacks/detergent ($1,000 – $5,000/each)
This is the reason your customers will come! Commercial washers come in a number of different sizes, with capacity ranging from 1.7 cubic feet to over 4.5 cubic feet. Many laundromats provide different sizes for different loads, charging more for use of the larger machines. In general, top-loaders are cheaper than side-loaders but are less energy and water-efficient. Even so, there’s a pretty enormous range of prices for washing units. For any given model, you want to take into account the long-term costs of the machine in terms of both utilities and maintenance. If you’re aren’t hunting for the absolute cheapest or most expensive models, you can probably expect to pay somewhere between $1,000 and $3,000 per unit.
Most customers who use laundromats will also want to dry their clothes on site. Dryers can be heated by electricity or gas, but the majority of new laundromats will probably opt for electric (typically 240 volts) unless they already have a convenient infrastructure for gas. If you’re short on floor space, you may want to consider stackable dryers, which allow you to double the number of units you can fit within your shop. Expect to pay a bit more for the privilege, however.
Dryers generally have a larger capacity than washers, ranging from 5.5 to over 9 cubic feet, as more space is needed to effectively dry the same amount of clothes. Like washers, you can probably find decent units for between $1,000 to $3,000 each.
A Payment System
The once-ubiquitous coin-operated laundry is a rarer sight than it used to be, but it’s still a viable option for laundromats looking to minimize startup costs. The coin boxes, feeder slides, and wiring add a small amount of expense to each machine. You’ll also need to spring for a bill-to-coin changer or two to ensure that your customers have quarters to feed your machines.
The downsides of a coin-based system come into play down the road. While you won’t exactly be a bank, you’ll have a lot more cash onsite, which means you’ll have more security risks than you would with a card-based system. Those risks can add expense–collecting the coins, transporting them, etc.
A card-based system, on the other hand, offers a lot of long-term conveniences. You won’t have to worry about collecting or keeping track of coins, and your customers won’t have to worry about having cash on hand when they walk in. Even better, these systems make it easier to track your sales. Additionally, they can function a bit like loyalty cards, encouraging customers to come back and spend down the value on their cards. Some systems also allow you to offer perks like dryer credits.
The downside, of course, is that these systems are pricey to install, adding upwards of $40K to your startup expenses. If you can afford it, though, the general consensus seems to be that they’re worth it.
Water Heating System
If you’re offering warm and hot wash cycles, you’ll need a heating system for all that water you’ll be using. These systems come with or without a storage tank. The advantage of the former is that it keeps hot water at the ready for use, but utilizes more energy to do so. Either way, you’ll want to make sure your system is powerful enough to produce enough hot water for all your machines should they run at once. With a tank storage system, you’ll want to consider its recovery rate to make sure it can meet peak demand, whereas with a tankless system your concern should be with the amount of hot water it can produce on demand.
While not necessary per se, there are some other items that will improve your customers’ laundromat experience and help you stand out from the competition.
First, there’s the stuff that helps customers take care of their laundry. I’m talking about carts that make it easier to move wet laundry to dryers, and dry laundry to tables for folding. And speaking of tables, you’ll probably want those too. How about seating for customers who are waiting for their laundry to finish? And maybe a way to buy detergent, fabric softener, or dryer sheets if they didn’t bring their own?
Vending machines are a common sight in laundromats, and for good reason. Your busy, captive clientele are likely to get thirsty or peckish. It’s not unusual for such machines to be a significant source of revenue for laundromats. Vending machine prices vary quite a bit depending on the model and whether you buy new or used, but you’re probably looking at an outlay between $1,000 and $5,000 each.
The final consideration is entertainment. Let’s face it, doing your laundry isn’t the most exciting thing in the world. Sure, many customers have smartphones, but maybe they’d be more comfortable watching TV! How about some toys to occupy kids? And who doesn’t associate laundromats with old-fashioned coin-operated arcade games? While none of these are necessary, they can be difference-makers when people are choosing where to do their laundry.
Where To Purchase Laundromat Equipment
You can purchase laundromat equipment through a number of different sources. The option that’s best for you will likely depend on your budget, your location, and your business plan.
Laundromats are such a common business there are actually quite a few companies that exist primarily to service them. These distributors specialize in selling, servicing, and installing laundry equipment. They also usually deal in parts, which can be useful if you’re trying to keep older machines running. If you decide to use a distributor, make sure they have a good reputation and work with the brands you want to use. If you’re looking to keep costs really low, many distributors also deal in used equipment.
You can also try to buy your equipment directly from the manufacturer. While many brands still work with local distributors to sell their products, some also offer their own financing programs to help customers buy their products. Coincidentally, if you know the brand of equipment you want, you can often use a manufacturer’s website to find distributors in your area.
While they aren’t nationally known like some other industries, there are a number of laundromat franchises operating in the US. Plugging into a franchise usually raises your starting costs. You’ll have to pay a franchise fee upfront, conform to franchise standards, and may have to pay royalties every month. In exchange, you benefit from the franchise’s advertising and supply chains. Keep in mind, a franchise will most likely lock you into specific brands and layouts.
You can, of course, buy equipment from retailers, but unless you’re taking advantage of a great sale or can come to some kind of bulk buying/financing agreement, this probably won’t be the best way to purchase the majority of your laundromat equipment. It may, however, make sense to buy some of your smaller one-off purchases this way.
Laundromat Equipment Financing Options
By now, you’re probably realizing that equipment makes up a lot of the cost of starting a laundromat, with total costs for an average-sized laundromat ranging between $200K – $500K. If you don’t have that much money lying around under your mattress, you’ll need to seek other sources of financing.
If you have decent credit (620+) and would rather have monthly payments rather than a large initial expense, you can lease your laundromat equipment. Leases come in two general forms: capital leases and operating leases. Capital leases are effectively loan substitutes, meaning you’re financing equipment with the intent to own. Operating leases, on the other hand, are rental agreements that allow you to utilize equipment that is technically owned by the leasing company. This can be a useful arrangement if you want to frequently upgrade your machinery. If you’re buying from a manufacturer, see if they offer captive leasing, or are partnered with any equipment leasing companies.
Keep in mind, however, that leasing is almost always more expensive over time than buying.
If you’re looking to buy and can afford a downpayment, a slightly cheaper option than leasing is to get an equipment loan. Equipment loans are secured loans that use the equipment being purchased as collateral. This tends to result in better term lengths and rates than you’d see with a similar unsecured working capital loan.
The Small Business Administration can help new businesses that may not otherwise qualify for competitive loan rates and terms to get them. The two most popular programs, 7(a) and 504, can both be used to purchase equipment. The term lengths offered by these programs can spread the cost of your equipment out over a long period and give your business time to mature. Just be aware that applying for SBA loans is an involved, time-consuming process.
Start Your Laundromat Business Off With The Right Equipment
Remember, a laundromat is itself something of an equipment rental business, with the customer “borrowing” your machines for short intervals to clean your clothes. That means your equipment should be one of the top priorities of your business.
Ready to do some purchasing? Check out our favorite equipment financers. Confused about some of the terminology? Take a look at our breakdown of the differences between equipment loans and leases.
The post Laundromat Equipment Guide: Expected Costs, Where To Purchase, & How To Finance Laundromat Equipment appeared first on Merchant Maverick.
Tech equipment–computers, IT equipment, and related items–poses some unique issues for businesses trying to decide whether to lease or buy. Tech equipment becomes obsolete more quickly than almost any other type of equipment, making it a poor long-term investment. At the same time, many businesses need to keep their tech hardware up-to-date in order to remain competitive.
Should you buy or lease your tech equipment? Read on.
How Does IT Equipment & Computer Leasing Work?
The word “lease” is often associated with rental agreements — like the ones you sign when you rent an apartment or lease a new vehicle. While those examples are the most common, the term has grown to encompass a number of other types of agreements.
Capital VS Operating Leases
While there are an enormous number of lease types with names like “triple buyout lease” or “synthetic lease,” almost all of them fall under two major umbrellas: capital leases and operating leases.
A capital lease encompasses leases like conditional sales agreementsÂ as well asÂ $1 buyout leasesÂ andÂ $10 buyout leases. A capital lease transfers ownership of the item in question to you, the lessee, either immediately or early during the lease’s terms. For all intents and purposes, the item is considered yours–it’s an asset on your balance sheet. Compared to operating leases, you’ll have higher monthly payments but a much smaller residual payment at the end of your lease (hence the $1 buyout, for example). You rarely, if ever, have the opportunity to return the equipment at the end of your lease. And why would you? You’ve already paid for its entire value, plus interest. If this sounds a bit like a loan, it should. You’d essentially use a capital lease as an alternative to an equipment loan.
Operating leases are more traditional leases. In fact, they’re sometimes called “true leases.” With an operating lease, the leasing company retains ownership of the equipment while you’re giving operating rights to it. This means the equipment is considered an operating expense for your business, rather than a purchasing expense. The most common type of operating lease is the fair market value lease (FMV). Typically, monthly payments will be lower with operating leases, but the amount left over at the end will be larger. Operating leases usually give you the option of returning the equipment to the leasing company at the end of your lease. You also have the option to buy it for its fair market value price, but in most cases, you’d be better off with a capital lease if you prefer to keep your equipment.
If a lease has a buyout option, that means that you have the option to purchase (buyout) the equipment at the end of your lease. Many types of leases are named for the terms of the buyout. For example, a fair market value lease grants you the option of buying the item at its fair market value. A $1 buyout lease? You guessed it; you can buy the equipment for a dollar at the end of your lease.
Why the enormous difference in buyout amounts? Remember, a capital lease frontloads the cost of the equipment into your monthly payments. The $1 residual is essentially just a formality; you’ve already paid for the item. On the other hand, with an FMV lease, you’ve only been renting, so the cost to buy is based on what a used piece of equipment that age would cost on the market.
There are a lot more obscure types of lease agreements that you may run into, but generally speaking, you can expect capital leases to have small, insignificant residual payments and operating leases to have larger, more significant ones.
Common Lease Terms
Equipment leasing comes with a lot of jargon. Let’s demystify some of it.
Lessor:Â The company financing your lease. Think “lender” but for leases.
Lessee:Â The person or company taking out the lease. Think “borrower” but for leases.
Term Length:Â The length of your lease. A typical tech equipment lease may run anywhere from a year to five years. The longer your lease, the more expensive it will be in most cases.
Interest:Â The amount you’ll be charged in excess of the value of the equipment. Rates usually start at around 6% and top out in the high teens, though some may be higher depending on your credit, the lessor, and the type of lease you select.
Fees: These vary by lessor and state. They may include supplemental charges like administration, restock, insurance, and origination fees.
Monthly Payment:Â The amount of money you’re expected to pay your lessor every month.
Residual:Â An amount required to purchase the leased equipment at the end of the lease. Generally speaking, the lower your monthly payment, the higher your residual, and vice versa. Capital leases have lower residuals than operation leases.
Leasing VS Buying Computers & IT Equipment
So why would you lease tech equipment instead of buying it? Let’s look at some of the advantages and disadvantages of leasing tech equipment.
Advantages Of Leasing
Easy Upgrading: Tech equipment becomes obsolete very quickly, which can make it a poor longtime investment. An operating lease may allow you to stay up-to-date on the latest technology without having to re-purchase every couple of years. This can help small businesses keep up with the technological curve.
Smooths Out Cash Flow: Breaking the cost of your equipment down into predictable monthly payments has its advantages, even if you are paying more over time.
Shipping & Installation May Be Covered: Unlike business loans, leases more frequently cover the full expense of factory-to-operational expenses.
No Downpayment: With the possible exception of having to make your first month’s payment up-front, the entry costs of a lease tend to be very low.
Disadvantages Of Leasing
More Expensive: Between interest and fees, it’s pretty much guaranteed that you’ll be spending more money on the equipment than you would if you have purchased it outright.
You Can’t Easily Resell: If you want to offload your equipment before your lease is over, you may run into some legal complications. Make sure you know your lessor’s policies before you try to transfer ownership to a third party.
Legal Complexity: There are a lot of different types of leases with a lot of different rules. Is the item an asset or an operating expense? Well, that depends on the type of lease you have! Are you responsible for maintenance and upkeep, or is the lessor? Again, it depends on the type of lease you have.
You Need Good Credit: Given the responsibilities that come with leasing, most lessors want to see a solid credit score
Advantages Of Buying
Tax-Deductible: As a business owner, you can write newly purchased equipment off of your taxes.
Cheaper: It’ll be a bigger expense up front, but over the longterm, you’ll have saved a good bit of money.
The Equipment Is Definitely Yours: Want to resell, modify, lend it to your cousin in Tallahassee, or smash it with a sledgehammer? You can! (Check your local laws regarding e-waste, though, if you take the smashing option.)
Less Complicated: Buying is simple. You exchange currency for ownership of the item. There’s not much fine print to sift through.
Disadvantages Of Buying
You Need Cash On Hand: Buying means paying the price of the equipment all at once. That means you have to have a decent chunk of cash in your reserves — or be willing to take out a loan. This can be a big ask for businesses that run on thin margins.
You’ll Be Stuck With Obsolete Equipment: Tech equipment isn’t the best long-term investment. Eventually, you’ll be stuck with obsolete gear that isn’t easy to get rid of. And on that note…
It Depreciates Quickly: Ever tried selling your iPhone four years after you bought it? Tech moves quickly.
Computer Leasing VS Buying: Which Is Better For Your Business?
There are advantages and disadvantages to both buying and leasing computers and IT equipment. Consider leasing equipment with a high turnover rate if you work in an industry where being on the bleeding edge is advantageous. On the other hand, if you have modest tech needs and can comfortably use the same gear for longer than five years, it may make more sense to just simply buy the equipment you need. There are additional considerations for businesses trying to smooth out their cash flows or otherwise apply their limited resources to maximum effect.
Don’t have the cash to buy outright but aren’t sure if a lease is right for you? Consider an equipment loan. Not sure where to look for equipment financing? Check out our Best Equipment Financing Companies. Just starting out and need equipment for your office? Try our guide on how to Get The Equipment You Need For Your Startup Business With A Loan Or Lease.
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As the COVID-19 pandemic shuttered businesses around the country, the Paycheck Protection Program, or PPP, was created by the passage of the CARES Act in late March. The goal of the PPP is to provide struggling businesses with forgivable loans to be used on operational costs, starting with payroll. Unfortunately, the initial $349 billion in funding authorized for the program was exhausted in just under two weeks due to overwhelming demand. When another $310 billion in funding for PPP loans was passed on April 24, it was feared that this second round of funding would be depleted just as quickly as was the first round.
However, in a webinar hosted by iHeartRadio on May 21st, the SBA confirmed recent reports that the PPP program still has over $100 billion in funding left to distribute. If your business has been suffering from the effects of COVID-19, you may still be able to get a PPP loan if you apply soon.
In addition to the above, the SBA released the following clarifications in its May 21 webinar:
Per the PPP Interim Final Rule, funding is on a first-come, first-serve basis; lenders should not hold or delay applications
Applications are approved by the lender, which sends them to the SBA for verification
If you applied before Phase 2 (before April 27), check with your lender to see if your application went into the SBA’s system
If you applied in Phase 2 (on or after April 27), confirm your lender has all it needs to submit your application to the SBA
A lender has up to 10 days after the SBA verifies the PPP loan for the disbursement
Upon receipt, consider using a separate bank account to track expenditures for forgiveness
Let’s talk more about the PPP program and the issues it’s had thus far.
Why Businesses Arenât Applying For The PPP
Many businesses have refrained from applying for PPP loans thus far. For some businesses, the reason is simple: they haven’t needed the funding. Other businesses have been deterred from applying by uncertainty surrounding the forgiveness rules — we’ll get into that in a moment.
Other business owners may have a need for additional capital due to the virus but may not be aware that a second round of funding for the PPP program was passed. Still others may have been discouraged by widespread reports of problems encountered by those who have applied for PPP funds. While these problems have been very real for the businesses affected, over $500 billion in funding has been distributed through the PPP thus far. Even accounting for the fact that some of this funding has unfortunately gone to healthy and/or politically-connected entities, that’s a significant transfer of money to PPP loan applicants.
Thankfully, if you apply soon, your business may still receive some of the money that remains in the funding pool.
Are Forgiveness Rules Going To Change?
As I mentioned, uncertainty regarding the conditions by which PPP loans can be forgiven has been a significant deterrent to businesses that may otherwise qualify for PPP funds. Additionally, some business owners have feared that they may face penalties or other legal consequences if an audit by the SBA concludes that they didn’t meet the threshold for “needing” the loan. However, on May 13th, it was announced that business owners with loans under $2 million will not face additional scrutiny by the SBA regarding their need for PPP funds and will not face penalties.
However, even if businesses won’t face the possibility of penalties for “unnecessarily” receiving a PPP loan under $2 million, you still need to use the money as laid out by the SBA’s rules in order to have your loan forgiven. To that end, bipartisan legislation has been proposed that would, if enacted, relax the forgiveness requirements by doing the following:
Let PPP borrowers use the money on payrolls for more than the eight weeks specified under the original program
Relax a requirement that 75% of the loans be used for payroll expenses
Give PPP borrowers more than two years to pay back any portion of the loan that doesn’t get forgiven
Allow businesses receiving PPP loans to receive a payroll tax deferment
This legislation — known as The Paycheck Protection Flexibility Act — has not yet been passed, but its broad support in Congress makes its eventual passage relatively likely.
Should Your Small Business Apply For The PPP?
Essentially, if your business has suffered due to the coronavirus pandemic and you could use funding to cover payroll and other business expenses, you should apply for a PPP loan ASAP.
I’m sure it’s discouraging to hear about people getting the runaround after applying for a PPP loan. Many business owners have written to us about their Kafkaesque difficulties in getting these needed funds. Simply put, the federal government has let down countless business owners at the worst possible time. Nonetheless, over $500 billion in PPP funding has been distributed so far, and over $100 billion remains. Apply now, and you’ll still have a shot at getting a PPP loan.
Learn More About The Paycheck Protection Program
If you’re thinking of applying but want to know more about the Paycheck Protection Program, how to apply, and how to ultimately have your loan forgiven, Merchant Maverick has a number of PPP-related resources to help you.
Start with SBA PPP Loans Explained for an overview of how the program works, who qualifies, and where to apply.
Then, check out How To Apply For A PPP Loan for information on taking the next step.
Read our article Your Guide To PPP Forgiveness Rules for more on how to have your PPP loan forgiven.
For more on how to get your business through the crisis at hand, check out ourÂ COVID-19 hub for all the latest developments. We’ve been updating it continuously to give you the most up-to-date guidance and resources possible.
The post There Is Still Over $100B Left In PPP Funding: Should Your Small Business Apply? appeared first on Merchant Maverick.
In much of the US, small businesses have been given the green light to reopen after several weeks of closure due to the COVID-19 pandemic. But with new cases and deaths still rising and no vaccine on the immediate horizon, experts warn that the coronavirus will likely be with us for some time. Though some types of businesses may be able to implement adequate provisions for social distancing, it is feared that the loosening of social distancing restrictions throughout the country could result in another wave of cases.
There’s still so much we don’t know about the novel coronavirus, but we know a lot more than we did a few months ago. Every day, we are learning more about how businesses can safely reopen, and how they can pivot to stay profitable in these new times. As the weeks go on, we’ll also learn more about what’s not safe and what does not work. In this post, we’ll take a look at some precautions you can take to prepare your business for a possible second wave of COVID-19.
Why The Second Wave Of The Coronavirus Could Be Harder Than The First
You’ve probably heard a lot about the coronavirus possibly being in our lives for 18-24 months. The reason is that this is the amount of time it could take for us to either a) develop a vaccine or b) develop herd immunity against the virus. But what exact course the virus will take in those 18 months to two years is unknown.
A new report from the Center for Infectious Disease Research and Policy (CIDRAP) presents three possible scenarios for the coronavirus, which are based on what scientists know about COVID-19 as well as historical pandemics. Scenario 1 is that after the spring 2020 wave subsides, we get that big dreaded “second wave” we hear so much about this fall or winter, with some smaller waves occurring periodically thereafter. In that scenario, which emulates the 1918-1919 Spanish flu pandemic, the second wave is even bigger and deadlier than the first. This model also reflects the warning from CDC director Robert Redfield, who cautioned that a second wave of the coronavirus in fall or winter could potentially be even more devastating than the first, partly because it will coincide with flu season.
Another scenario presented in the report is that after spring 2020, we’ll see a series of peaks and valleys of the virus over a one- to two-year period, varying by geographic region. CIDRAP says that, depending on the height of the wave peaks, this scenario could require “periodic reinstitution and subsequent relaxation of mitigation measures over the next 1 to 2 years.”
The third scenario posited by CIDRAP is that we’ll see more of a “slow burn” with ongoing low levels of transmission but no major spikes. While this hasn’t happened in past pandemics, the scientists say it remains a possibility for SARS-CoV-2 and one which likely would not require reinstitution of stay-at-home orders or strict social distancing measures.
So it’s pretty clear to see how second waves, third waves, and so forth, will impact businesses and potentially require new lockdowns restricting business activity. While we can be cautiously optimistic that the worst-case scenarios won’t come true, we also need to be prepared for the possibility of a second wave of the virus that could result in more business restrictions and lockdowns.
It’s also a sad reality that even if the second wave is less severe from a health perspective, the economic toll of another prolonged closure (partial or otherwise) could be the final nail in the coffin for many small businesses still trying to recover from the economic effects of the first closure.
Is It Safe To Reopen Yet?
With no national quarantine or coronavirus-related business restrictions in place, states are each making their own decisions about reopening businesses. Individual counties and cities have their own business restrictions as well, with some cities and counties requiring masks at places of business and others having no such requirement. As both the pandemic and the recession continue to deepen, there’s a lot of discussion about how to balance economic health and public health, and also whether local governments are being too hasty about reopening businesses.
When you look at what businesses are doing now, there is a lot of variance from one region to the next, with some states, such as California, maintaining stricter social distancing protocols. For instance, California restaurants can offer takeout and delivery but not dine-in service. California is also doing some phased reopening — such as allowing curbside pickup for retail — in response to effective curve-flattening measures that have slowed the growth of new cases and deaths. Higher-risk businesses that require close contact with other people, including salons, barbers, gyms, and theaters, remain closed.
Meanwhile, in states such as Tennessee, dine-in restaurants are already open, as are salons and gyms. Tennessee is also lifting the 50% capacity restrictions on retail and restaurants, effective May 22. The state is even allowing large attractions, such as theaters, amusement parks, water parks, museums, and auditoriums, to reopen, also on May 22.
So, sticking with those two examples, are Tennessee businesses jumping the gun on reopening, even inviting a second wave? While California does have more than four times as many cases as Tennessee, the share of the population that’s infected is actually higher in Tennessee — one in 391 in Tennessee and one in 489 in California, according to New York Times data.
While time will tell the true impact of business reopenings during the pandemic, based on what immunologists tell us about where you are most likely to be infected by COVID-19 — indoor spaces with lots of people — it’s easy to see how even a single transmission event in a crowded gym or restaurant could cause a local outbreak and resulting business closures.
Again, some types of businesses may be able to reopen a lot more safely than others. It’s possible that, given the right circumstances, even higher-risk businesses such as salons may be able to safely reopen with stepped-up health and safety measures. It will be largely up to business owners (and their local governments) to decide if and how they can safely reopen, but generally, the better safety measures you can put in place, the better protected your business will be against a second wave of the coronavirus.
8 Things You Need To Do To Prepare Your Business
What do business owners need to do to get ready for future outbreaks? What should you have learned, and what should you be prepared to do the second time around? Let’s look at some specific things business owners can do to prepare for another wave of COVID-19.
Invest In Safety
Both to reassure customers and prevent your business from being a source of infection, it’s essential that you step up the health and safety policies of your store or restaurant. Whether that means investing in better personal protective equipment for your staff, putting up signs to encourage social distancing, or improving your building’s ventilation system, you can’t go wrong with a cleaner, healthier business. While most businesses have already implemented some enhanced safety measures, it’s likely you still have some room for improvement, especially if you initially implemented safety measures made for short-term/temporary use.
If you’ve received an EIDL or PPP loan from the SBA, you might consider spending some of it on safety-related supplies, such as PPE, or enhanced sick leave for your staff to discourage them from coming into work sick. (Note that you can only spend 25% of a PPP on non-payroll expenses.)
Revisit Staffing Plans
As businesses reopen, they are having to reevaluate their staffing needs going forward. In some cases, businesses have received PPP funds, but their employees don’t want to come back; other businesses are shutting their doors for good because their loan still hasn’t come through. As the crisis drags on, it’s necessary to view staffing with a long-term view and consideration of what you will do if a second wave forces you to close again. For example, if you’re currently seeing an uptick in demand after reopening, do you need more staff urgently, or can you wait to hire till later to avoid laying people off in the event of another closure?
A POS with employee management can help you make smart scheduling decisions. It’s also a good idea to communicate openly with your employees about your staffing plans because they are probably just as anxious as you about what will happen.
Work On Your Online Presence
If it wasn’t clear already, the pandemic has shown us that having an online presence is an essential tool for communicating with customers about changes to your hours, policies, and other crucial information customers need. Before visiting a business these days, we are more likely than ever to check the business’s website or Yelp profile — we want to make sure they’re still open, and in what capacity. Ahead of a possible second wave, it’s absolutely necessary to get in the habit of routinely updating your website and social media profiles with your current information. You can also use your website and social media for marketing, including offering special online sales during a closure.
If you don’t have a website for your business, you may be able to set one up through your POS — for example, Square POS lets you set up a basic website in minutes. You can also use a website builder to set up a professional website; read Best Website Builders For Small Businesses to learn about options.
Set Up eCommerce Sales
Small business websites have also become an increasingly vital sales channel during the coronavirus pandemic, as eCommerce = socially distanced commerce. If your business doesn’t have eCommerce options, it’s time to set them up. Depending on your business model and industry, you may want to implement the following eCommerce options:
Online Ordering/Local Delivery: Customers can order items or food from your website and have the items shipped or delivered to their homes.
Curbside Pickup/Order Ahead: Customers order from your website and then visit your store to pick them up without having to go inside.
QR Code Shopping: Customers can scan an item’s QR code in your store or store window and then buy the item online.
Online Gift Cards: Customers can buy digital or physical gift cards from your website and spend them on your website or in your store at a later date.
Contactless Payments: This is more of a POS option that can allow for socially distanced payments, but adding a digital payment option, such as Apple Pay,Â can also add another convenient option for customers to pay on your website with one click.
Social Media Selling: Even if you don’t have a full-on eCommerce website, you can sell products and services on social media. Multichannel POS systems, such as Shopify, make it easy to sell on social media, and Square also has a new Square Online Checkout payment option that makes it easy for customers to buy straight from your social media page.
Gather Important Paperwork In One Place
Being organized is key when applying for financing or any kind of aid. If you need a second round of emergency loans, speed will be essential. Make sure you keep all your important paperwork in one place, so you can access it when you need it. If you have received a PPP loan, you’ll also need to keep good documentation practices for when it comes time to apply for PPP forgiveness or if you are unlucky enough to face a PPP audit.
Look At Sales Data
When you need to pare-down operations (reduced business hours, limited customer capacity, online-only, etc.), you need to be super-strategic about what you sell. To this end, your point of sale system should have a wealth of POS data about when you were busiest, what sold well, slow-selling items, etc. You can leverage that data to do things, such as raise prices on hot sellers, lower food costs on a higher-cost dish (for restaurants), adjust your hours and staffing based on your busiest times, and much more.
Small businesses that can use data wisely to adapt quickly are in the best position to survive a second wave of the coronavirus and even a prolonged economic downturn. If you do not have a modern cloud POS with good reporting and analytics, now might be the time to upgrade. Check out our top POS software comparison to look at some of your best options.
Prepare For Shortages & Price Fluctuations
The pandemic has drastically affected the global supply chain, and it is very likely that your business could see shortages of products, supplies, ingredients, or raw materials. Even if you can get the items you need for your business, you may have to deal with price increases. These shortages and resulting price increases could be exacerbated by future waves of the virus, even if your immediate region is not affected. For example, restaurants are now seeing meat shortages and higher meat prices due to outbreaks at meat-processing plants.
In some cases, however, you might get lucky and see price decreases for some supplies, due to decreased demand and possible deflation. For example, gas prices tumbled during the early days of the pandemic. Overall, US producer prices posted their largest annual drop in five years in April 2020. The downside to falling prices is that customers will expect lower prices as well.
For more insight into the supply chain and COVID-19, read Why Small Business Owners Need To Understand Supply Chain & Risk Mitigation: COVID-19 Edition.
During times of uncertainty, it’s important to keep a close eye on your business finances and your cash flow in particular. Crunch your numbers and project your future earnings under different scenarios. If you’re facing another closure, how could your cash flow be affected? What about debts? If you’re not used to making these sorts of calculations, it might be a good idea to employ the services of a financial advisor who can offer a cash flow analysis and give you sound advice about how to handle your business’s finances in the current climate. Accounting software can also help.
15 Resources To Help You Weather Another Wave Of COVID-19
Here is a list of resources you can use to adapt your business to the new times we’re living through. Use these resources to learn more about socially distanced selling, emergency financing, and software that can help you sell smarter during COVID-19.
Take Advantage Of These Small Business Grants For Coronavirus Relief: Find out if your coronavirus-affected small business is eligible for a COVID-19 relief grant from an organization, such as Facebook, Amazon, Spanx, or others.
5 Clever Marketing Tactics For Small Businesses During The Coronavirus Pandemic: Keeping in touch with customers is even more important as businesses temporarily close or switch to online and delivery. Here are five marketing tactics to help.
Social Distancing For Small Business: How You Can Adapt & Survive The Coronavirus:Â Social distancing can help contain the COVID-19 pandemic, but it has hit small businesses hard. Your business can weather the storm by getting creative.
Coronavirus Payments Guide: Everything You Need To Know About Switching To Online & Phone Payments: This article has everything you need to know about accepting payments online and over the phone instead of in-person.
Quick Business Loans: The 6 Best Lenders & 10 Tips For Fast Approval:Â Looking for fast cash for your business? Read this one for a look at six reputable lenders that provide quick business loans and fast approval.
What The Coronavirus Means For eCommerce & What Your Business Can Do About It:Â What does the coronavirus mean for eCommerce business? Learn the top eCommerce trends and how your small business can leverage them.
Everything You Need To Know About NFC Technology & Why NFC Payments Are The Future:Â Are you ready for the future of payments? Business owners should learn how NFC works and adopt contactless to protect customers — and yourself.
The Business Owner’s Retail Guide To Surviving The Coronavirus:Â Are you a small business retailer worried about the state of your business? Check the top tips and resources to keep your business strong during COVID-19.
Coronavirus Survival Guide For Restaurants:Â Learn how your restaurant business can adapt to new business conditions in the age of coronavirus, including resources on how you can save your business from closing and continue serving customers during this crisis.
5 POS Systems With Exceptional eCommerce Integrations For Online Sellers:Â eCommerce sales are growing, but retail stores arenât going away any time soon. Get the best of both worlds with these great eCommerce-friendly POS systems.
Restaurant Delivery Guide: Everything You Need To Know About Implementing In-House Delivery: Considering expanding your restaurantâs services to include delivery? Hereâs what you need to know to implement restaurant delivery successfully.
What Is Square Online Checkout? Your Guide To Using This New Square Payment Option:Â Square just launched a brand new payment service called Square Online Checkout. Learn about this online payment option and how it can help businesses in the age of coronavirus.
Why Point Of Sale Data Is The Secret To Understanding Your Business And Making More Sales:Â Your small business is sitting on a gold mine of information locked away in your POS system. Learn how to use that point of sale data to your benefit.
Easy Accounting Software For Small Businesses: Find easy accounting software for your business no matter what your level of accounting experience is. These top seven choices are easy to learn, set up, and use.
Employee Management With A POS System: The Secret To Simplified Timekeeping, Scheduling, & Reporting:Â Your POS system probably has employee management features that can make timekeeping and scheduling much easier. Hereâs how to make the most of these tools.
The Bottom Line: Your Business Isnât In The Clear Yet
We are starting to see some signs of small business recovery, and that’s a great thing. But business owners must stay vigilant and be prepared for the very real possibility of more pandemic-related business disruptions in the near future.
It can be difficult to plan for the future when you’re still working through the first wave, and there is still so much uncertainty. You might also have the thought that you don’t want to over-prepare for something that might not happen (at least, not in your local area). But the fact of the matter is that even before the pandemic, businesses were moving in the direction of eCommerce, contactless payments, online ordering, cloud POS, etc. The pandemic only accelerated the changes that were already in motion. Also, even after COVID-19 is over, customers will likely remain more mindful of health and safety and will continue some socially distanced shopping practices that they relied on during the pandemic (e.g., curbside pickup). So even if you get lucky and don’t have to deal with a resurgence of this particular virus, your business will benefit from adapting to modern sales technologies, safer health practices, and data-driven ways of making business decisions.
For more information on COVID-19 and small businesses, be sure to check out our Coronavirus (COVID-19) Guides & Resources.
The post Is Your Business Ready For A Second Wave Of COVID-19? appeared first on Merchant Maverick.
It was a long time coming for many small businesses seeking relief through the Paycheck Protection Program (PPP). Now that they have the money and have read some of the fine print, some business owners are discovering that the program may not be a great fit for their specific circumstances.
If you have received a PPP loan but are having second thoughts about whether or not it’s a good idea to keep the money, you are not alone.
Many Small Businesses Are Discovering That PPP Funds Aren’t The Right Fit
With normal business patterns shattered into a million pieces by the COVID-19 pandemic and associated lockdowns, many small businesses looked to the PPP as a lifeline. Particularly appealing was the promise that businesses would be able to have the loan forgiven if they met specific criteria. But after a rocky rollout that took two separate rounds of Congressional funding (so far), the SBA is only just now formally releasing the specific guidelines and application for loan forgiveness. Early reports suggest more than 30% of PPP borrowers have returned their funds so far.
Preliminary guidelines for PPP loans had established that the loans would be used to keep employee paychecks going for eight weeks. Forgiveness was contingent on at least 75% of the loan being used for payroll. Less, but still some, of the loan could be forgiven if the business decreased payroll by way of staff or salary reductions. The uncertainty about what these thresholds are, and what other expenses the money can be applied to beyond payroll, have many business owners questioning whether they made the right decision. Complicating matters further is some confusion between the PPP and the SBA’s other major coronavirus intervention, Economic Injury Disaster Loans.
Reasons To Return Your PPP Funds
Not sure if you should keep or return the money? Let’s look at some test cases.
1) You’ve Weathered The Crisis Pretty Well And/Or Don’t Need The Money
While the pandemic has been a disaster for many businesses, some were better positioned to pivot to the new paradigm than others. A smaller number may even have unexpectedly seen their sales go up. Since this is all new territory for most businesses, no one could blame you for preemptively applying when you expected the worst.
The Treasury Department does require that borrowers certify in good faith that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
The good news is that if you borrowed less than $2 million through the PPP, the SBA and Treasury Department have stated in their latest guidance that they will assume you asked for the loan in good faith. While you won’t have to worry about any legal issues, you may still want to consider returning the money to avoid paying interest.
If you borrowed $2 million or more and aren’t certain you can convincingly demonstrate good faith, you should return the funds immediately to avoid any potential auditing and legal troubles (at the very least, you won’t qualify for loan forgiveness and will be expected to repay the loan). The “Safe Harbor” grace period to do so currently ends May 18, 2020.
2) You Don’t Think You Qualify For Loan Forgiveness
A 1% interest loan is nothing to sneeze at, but the fact remains that many PPP borrowers took out the loan with the expectation that it would be forgiven. To qualify for full loan forgiveness, PPP funds could be used for:
Payroll Costs:Â Capped at $100K/annually per employee, with sole proprietors and self-employed individuals also qualifying. No full-time salaries may be reduced by more than 25%. If you did have to cut wages, you have until June 30, 2020, to restore the salaries. It was expected that 75% of the loan’s value would cover payroll costs, including benefits.
Mortgage Interest: Of the remaining 25%, funds may be spent on obligations incurred before February 15, 2020.
Rent:Â Of the remaining 25%, funds may be spent to cover rent payments for two months so long as the lease agreement for the property was in effect before February 15, 2020.
Utilities:Â Of the remaining 25%, funds may be used to pay for utility bills.
You are, of course, expected to provide documentation of your expenses. If you struggled to retain headcount and don’t see it returning to normal until July or later, you may have anticipated meeting the guidelines but fell short in practice. If it doesn’t make sense to have a loan on your books, you may want to return the funds.
3) You Don’t Think You Can Pay The Loan Back In Two Years
If you don’t qualify for forgiveness, or only qualify for partial forgiveness, you’ll be stuck with an installment loan. A 1% interest loan with a six-month deferment is, by any objective measure, an absurdly good loan. That said, if your business is struggling, you may not have the spare revenue to pay it back within that time. In that case, it may make more sense to return the funds, especially if you want to qualify for federal loans in the future.
4) Your PPP Loan Conflicts With Another Program
The confusing patchwork of CARES Act programs can be hard to navigate, especially when you’re trying to figure out which ones are mutually exclusive. For example, if you want to qualify for the Employee Retention Credit (ERC), you can’t also receive PPP funds. This might be especially annoying for businesses that didn’t know about the ERC when they initially applied for a PPP loan.
Luckily, you can still claim the tax credit if you return your PPP funds by the May 18 deadline.
5) You’re Not Going To Make It
The unfortunate truth is that it will probably take a while for the economy to rebound and business to return to normal even after the lockdowns have ended. If your projections for your business aren’t looking good, you should ask yourself whether or not it makes sense to carry this debt.
How To Return Your PPP Funds
Contact whichever lender through which you applied for your PPP loan. They can guide you through the process of returning your funds to the Treasury Department. Remember that the Safe Harbor provision expires on May 18, 2020, so if you require leniency on the good faith provision, and/or you want to qualify for the ERC, you should begin the process immediately. Other borrowers who are considering returning their funds have a little more time to make that decision.
FAQs On Returning PPP Funds
Do Safe Harbor rules apply to small businesses, and what happens if I return the money after the Safe Harbor deadline?
In this regard, the most recent guidance does not appear to distinguish between the sizes of the businesses that received funds, only the amount they borrowed. If you borrowed less than $2 million, not much will happen to you; you’ll just miss the opportunity to qualify for the ERC. If you’re simply worried about not qualifying for full forgiveness, you can still return the money after the Safe Harbor period ends.
On the other hand, if you borrowed more than $2 million and can’t demonstrate that you borrowed in good faith, you may be subject to audit and possible further legal action.
Will I have to pay interest if I return the money?
If you return your PPP loan during the Safe Harbor window, you effectively never had the loan. After that, if your loan hasn’t been forgiven, you may be considered to have made a prepayment (check with your lender to be sure). There are no prepayment penalties on PPP loans.
Are PPP forgiveness rules going to change?
Difficult to know at this point. There are still some questions regarding how strictly the 75%/25% payroll/expense split will be enforced, how partial forgiveness will work, whether the eight-week loan period will be extended, and so on. Merchant Maverick will keep you updated on any changes that come down the pipe.
The post When You Should (& Shouldn’t) Return PPP Money & How To Return PPP Funds If It’s Not The Right Fit After All appeared first on Merchant Maverick.
Most businesses need equipment to run their operations at full capacity. What they may not have at any given time is the ability to buy all the equipment they need out of pocket. Equipment loans and leases can fill the gap, but borrowers with bad credit may worry that they’ll be locked out of the financing they need.
Below, we’ll take a look at some of the challenges borrowers with bad credit may face in trying to get equipment financing — and some of the equipment financing solutions they can use to get around them.
Is It Possible To Get An Equipment Lease Or Loan With Bad Credit?
The short answer is “yes,” but it may take a little more work.
Equipment loans are an interesting case. As secured loans, you might assume they’d be less risky for the lenders than many of the unsecured loans offered to businesses with poor credit. While there’s some truth to that, the longer-term lengths of equipment loans still mean it will be a while before your lender recoups their investment. Because of this, you’ll see many equipment loans with minimum credit score requirements in the mid-to-high 600s. That can put them out of reach of someone who has recently endured financial hardship. As is usually the case when it comes to lending, there are exceptions, however.
Equipment leases cover a much larger spectrum of agreements, although many of them are even more credit-contingent than those of loans. The amount of leeway you’re cut will depend on the type of lease you’re applying for, and your lessors’ business model.
Bad Credit Problems You Might Encounter
Before we get to the solutions, let’s take a look at some of the challenges you may encounter when you try to get equipment financing with bad credit.
1) Fewer Options
It may not be fair, but businesses with better credit will always have more options than businesses that don’t. Your search changes from “the best possible deal” to the “best deal possible with my credit rating.”
That doesn’t necessarily mean there won’t be a lot of options, however. Many online lenders specialize in financing customers with bad credit. Just expect to do your due diligence and make sure you’re dealing with a reputable lender that won’t needlessly gouge you.
2) Higher Rates
Even the lenders who don’t use credit ratings to rule out borrowers often still use it to segment their borrowers into different grades. The better your credit, the lower the rates you’ll qualify for. Likewise, the worse your credit, the higher your rates will probably be.
Keep in mind, however, that not every financer weights credit score the same. The degree to which the funder depends on credit will vary based on how many other sources of information they have on you regarding your fitness as a buyer. Repeat customers, for example, are often given leeway that new customers aren’t.
3) Unsatisfactory Terms
Credit issues may constrain the type of agreement you qualify for. For example, you may have to settle for a lease with a higher or lower residual than you may have wanted. Alternately, you may end up with a term length that doesn’t fit your needs.
4) Bigger Downpayments
In some cases, reluctant lenders can be placated by offering them more money at the beginning of your term. In the case of loans, this may come in the form of a larger downpayment. In the case of leases, they may ask for an additional month’s payment upfront. Depending on how much cash you have on hand, this may or may not create unnecessary strain on your bottom line.
You also run a higher risk of your application simply being rejected. Filling out applications takes time — time you could be spending on any other business-related-activity. Not only that, but too many pulls of your credit–especially hard pulls–can actually have a negative effect on your credit score.
The fewer applications you have to fill out and subject your credit to, the better.
7 Ways To Get Equipment Leases & Loans If You Have Poor Credit
So now you have an idea of the challenges you can face when looking for equipment financing while you have bad credit. Here are some ways you can overcome those challenges:
1) Improve Your Credit
It may not surprise you to hear that the best way to avoid having to apply for equipment financing with bad credit is to not have bad credit. Improving your credit takes time, but there are a number of different ways to go about it including:
Settling outstanding debts
Consistently paying your bills on time
Ask for higher credit limits on your credit cards
Don’t utilize all the available credit you have
2) Get A Co-Signer
You are more than a credit score. Financers don’t necessarily know that, but your friends and family do. If they trust you enough to do so, consider asking them to co-sign your loan if your lender gives you the option. Co-signing essentially adds an additional party as a guarantor for the loan or lease.
Just remember you’re putting your co-signer on the hook for your debt if you default. Be sure to read the fine print and make sure you understand what liens are involved and what kinds of assets are at risk beyond the equipment you’re financing. At the very least, both you and the co-signer will take a credit hit.
3) Take The Best Offer & Refinance
If you need help right away, you can always take a sub-par loan offer now and then refinance when you have access to better rates, either due to your credit improving or you having more time to hunt down a better deal. Keep in mind that this may not be an option with a lease, at least not until you’ve fulfilled your lease obligations.
4) Offer To Make A Bigger Downpayment
I mentioned this earlier under the “problem” section, but it’s also a solution. If your financer is on the fence about your application, you can sweeten the deal by offering to put more money down. In the case of a loan, it would be a larger downpayment. In the case of a lease, you could offer to pay the first and/or last month’s payment in advance.
5) Prioritize Equipment That Holds Its Value
When it comes to financing equipment, the equipment in question matters quite a bit. Remember, the equipment is the collateral. If you’re a lender, wouldn’t it be less risky to finance an item that retains more of its value over a longer period of time? That means you may have an easier time getting approved for, say, heavy machinery than you would an item that depreciates quickly, like a computer.
6) Prioritize More Expensive Equipment
Surprised? For the most part, big-ticket items tend to hold onto more of their value than less expensive items (consider how often you’d buy a tractor versus, say, a smartphone). If you default, your financer will prefer to collect an item that is still worth their time and effort to resell. Because of this, you may find that a prospective lender will be more accommodating if you have a more expensive piece of equipment in mind.
7) Defer Buying Until Your Situation Improves
While the newest models of a piece of equipment often come with intriguing bells and whistles, it doesn’t always pay to be an early adopter. If the older equipment you’re using right now still works or just needs minor repairs, it may be enough to carry you over the gap until your finances are in order. Besides, many times new models still have some bugs to work out.
Don’t Let Bad Credit Stop You From Getting Equipment Financing
Bad credit makes getting most kinds of financing more challenging, but it doesn’t necessarily have to stop you cold. With the right strategy and the right financer, you can get the equipment loan or lease you need to keep your business humming.
Need help finding an equipment financer? Check out our list of best equipment financers for small businesses. If you’re interested in more specialized guides, check out our resources on financing restaurant or gym equipment.
Confused about some of the terminology used in equipment financing? We can break down the differences between equipment loans and leases for you.
The post Bad Credit Equipment Leasing & Loans: 7 Equipment Financing Solutions If You Have Poor Credit appeared first on Merchant Maverick.