Emergency Funding Sources for Businesses during a Pandemic

Our economy has taken a real beating since early March when many states closed down non-essential businesses. This has resulted in numerous small and mid-sized business owners to scale down their operations, or in some cases, to scale up their operations because other businesses were unable to keep up with the current demand.

Defining Essential Businesses

Each state has determined individually what qualifies as an essential business during this pandemic. In many cases, these jobs were defined as anyone who provides food, utility services, medical care, or law enforcement services. Some were more broadly defined, leaving many business owners confused, or operating under new guidelines including having a process in place for keeping employees, customers, and vendors safe. These involved investments of different amounts depending on the industry.

CARES Act Loans Not Distributed to Many Business Owners

The CARES Act which was signed into law by President Trump offered businesses with up to 500 employees (defined as a small business) an opportunity to participate in the Payroll Protection Plan (PPP). This plan provided short-term loans for small businesses where they could recover up to six months of expenses provided they rehired their employees during the pandemic. If a company kept their employees on the payroll, the loan would be forgiven (i.e. turn into a grant). However, there have been numerous complaints about this program including:

  • Few minority businesses were unable to secure funds
  • Large banks lending to well-established businesses
  • Contractors, women-owned businesses and those who used community banks were unsuccessful in making applications

The overall result of PPP has been disappointing for many small business owners because while there were significantly reduced requirements, many of the larger banks were able to approve loans more quickly than community banks and non-traditional lending institutions. This has left many business owners struggling with the funds needed to keep their businesses afloat during this challenging time.

Options Available Outside PPP

For those business owners who were unsuccessful in applying for funding under PPP, there may seem to be very few options. However, since there are still construction projects going on, many mom and pop stores remain open, and many restaurants are operating, there is still a need to fund some of the most vulnerable businesses during this time. This leaves business owners facing the awkward decision of how to keep their bottom line in the black while we all adjust to what may be a “new” normal. Here are some of the options available to those business owners:

  • Borrowing from family and friends — unfortunately, for many, this option may be off the table. Since there are over 36 million people out of work, many are struggling with their own financial challenges and may be unable to help.
  • Self-funding using credit cards — because these times are so uncertain, this may not be the time to max out your credit card bills. While most businesses are reopening, we still do not have any clear information which will tell us when customers will “return to normal”. Because of the fear of being infected with the coronavirus, many business owners will see a decrease in business, at least for the short term.
  • Invoice factoring — since many businesses, including import and export businesses, temporary agencies, and distributors and suppliers will be facing unprecedented orders as businesses reopen. The fact is, many businesses have been closed for upwards of 60 days resulting in low or no inventory meaning importers and exporters, as well as suppliers and distributors, will be facing new strains. Because some employees will not feel comfortable returning to work or be facing childcare issues, temp agencies may see a significant influx in demand. All of these businesses will need cash on hand which may make invoice factoring the best option.

Why Invoice Factoring Makes Sense

Rather than attempt to get a new bank loan, which many acknowledge could be more challenging, using your future cash flow to fund increased demand for your products or services makes sense. Not only are you avoiding taking on new debt, but you will also be able to receive payment for those goods or services in a timelier manner, a lot faster than the normal 30 – 90-day cycle usually associated with accounts payable.

If you are one of the thousands of small or medium-sized business owners who are facing a cash crunch as your company prepares to reopen following a shutdown, or if you have been open all along but you need additional capital to meet demand, contact a highly-trained representative at Capstone Trade today at (212) 755-3636 and let us help you design a customized financing package designed to meet your specific needs.


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