Life After PPP – Corporate Cash Flow Options

Highlights of a forthcoming article in Textile Services magazine. This report looks at funding options beyond the popular Paycheck Protection Program.

The economic impact of the coronavirus pandemic and recovery is expected to continue for months and likely years to come. As congress attempts to save different areas of the economy, everyone in the linen, uniform and facility services industry should be aware of the many resources available to aid them in that recovery.

PPP & Other SBA Loan Options 

The Coronavirus Aid, Relief and Economic Security (CARES) Act lifted the Tax Cuts and Jobs Act (TCJA) restriction that limited the deduction of business interest from 30% of adjusted taxable income to 50% – at least for 2019 and 2020. While there continues to be no limit on deducting business interest for smaller businesses, the CARES Act earmarked funds for businesses and other eligible applicants, with a major portion coming from the Payroll Protection Program (PPP).

Overseen by the U.S. Small Business Administration (SBA), the PPP offered low-interest, government-backed loans from private lenders that could be used to help small businesses and professional practices retain employees and continue to pay their bills during the pandemic. Many of these loans are expected to convert to grants, provided that the bulk of the funding is used to cover payroll expenses. Fortunately, the government’s coronavirus-related funding didn’t end there. Other assistance program options include:

• Economic Injury Disaster Loans (EIDL) are a longstanding program offering low-interest loans directly from the SBA (rather than through a bank) of up to $2 million to small businesses that have suffered major issues related to a disaster. These loans can be repaid over 30 years and carry an interest rate that won’t exceed 4% – with no payment due the first year. In response to the pandemic, Congress added a provision to the EIDL program offering an immediate advance of up to $10,000. Effectively a grant, the government does not require repayment, and the funds are available within days of a successful application.

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

• The most popular program is the SBA’s flagship 7(a) loan that provides working capital for a wide variety of uses. The 7(a) loan guarantees, topping out at $5 million, are commonly used to acquire land, purchase equipment or working capital. They require low down payments, offer flexible terms and affordable, variable interest rates.
• SBA Express Loan applications are responded to within 36 hours. They can help extend a business’s credit line by providing up to $350,000 for up to seven years, while guaranteeing 50% of the loan to banks and other financial institutions that partner with companies.
• 504 loans are longer-term fixed-rate loans that provide capital for the acquisition of fixed assets. They are usually used for owner-occupied real estate and equipment purchases. However, while SBA 504 loans are most commonly used for real estate, they can also be used to renovate existing facilities, purchase equipment with a service life of 10 years and refinance commercial real estate debt.
• The SBA’s Microloan program provides loans to not-for-profit lending intermediaries. These, in turn, make loans of up to $50,000 to help small businesses and certain not-for-profit childcare centers start-up and expand.

Federal, State, Local and ‘Small Biz Centers’ 

Assistance is available through:

• Small Business Development Centers (SBDCs), almost 1,000 strong, that “help existing businesses remain competitive in a complex, ever-changing global marketplace.” Universities and state economic development agencies host SBDCs that are funded, in part, through a partnership with the SBA. Less than half of an SBDC’s funding comes from the SBA, with the remaining portion coming from Congress, state funding, donations, grants and corporate sponsorships.
• The Federal Reserve’s Main Street Lending Program is  providing up to $600 billion in loans to small and midsize businesses. Designed to help businesses and professional practices in need of funding to help until they have recovered from, or adapted to the impact of the pandemic, the program offers 5-year loan amounts ranging from $250,000 to $300 million.
• Most state and local programs, both those aimed at attracting or retaining workers and recovery from the pandemic, offer tax breaks and/or small grants that do not have to be repaid. With many small businesses impacted by the coronavirus pandemic, many state and local governments are offering assistance in the form of low-interest loans and grants.
• At least 24 states and the District of Columbia have financial-aid programs, loans, grants and funds designed specifically to help small businesses survive the pandemic. Keep in mind, though, that because of overwhelming demand, some funds targeted for business-related pandemic relief and recovery have run out of money faster than anticipated.

Bank Loans

It’s all too easy for linen, uniform and facility services businesses to overlook their banks and how important that relationship can be – as many discovered when seeking PPP funding. Banks offer an array of programs to help customers affected by the pandemic. Of course, conventional bank loans continue to dominate financing for small and midsize businesses in need of capital. After all, proper use of small business loans can consolidate debt, provide needed capital, allow for expansion and aid in the recovery process. But don’t overlook bank funding from other financial institutions such as:

• Bank of America is providing up to $200 million in capital to community development funds, including $10 million in philanthropic grants to help fund Community Development Financial Institutions (CDFIs).
• Citi has also committed $10 million to help CDFIs provide funding to those who may not fully qualify for federal government stimulus funding.
• Goldman Sachs has committed $300 million to aid small businesses and communities suffering through the coronavirus crisis. The package includes $250 million in emergency small business loans, $25 million in grants to CDFI financial institutions.
• JP Morgan Chase pledged $50 million to help businesses, nonprofits and other organizations during the crisis. Of the $50 million, $8 million was specifically reserved for “small businesses vulnearable to significant economic hardships.”

More Resources

Financial institutions are increasing the digitized services they offer, while a relatively new financial marketplace competes with offerings such as peer-to-peer lending, alternative online financing and crowdfunding. This type of commercial lending is becoming a big business, with hundreds of millions of dollars raised from these unique Internet-based “platforms.”

So called “digital transactions” involve constantly evolving methods whereby Financial Technology (FinTech) companies collaborate with various sectors of the economy to take advantage of new lending and capital-raising opportunities.

In fact, FinTech is one of those areas that is predicted to see further strength and is expected to provide as much as $22.6 billion in funding by 2025. FinTech-related funding vehicles include platforms such as:

• Crowdfunding is becoming a popular alternative source of financing for many small linen, uniform and facility services businesses. The Securities and Exchange Commission (SEC) now allows businesses and even first-time start-ups to raise up to $1 million online from nonaccredited investors over 12 months.
• Peer-to-Peer (P2P) lending can be best described as nonbank banking. It is the practice of matching borrowers and lenders through online platforms. P2P borrowers are able to gain access to funds quickly and often at lower interest rates than banks, making it an attractive alternative to more conventional bank loans. Unfortunately, even though it may be the most innovative source of funding, P2P lending is definitely not the most affordable.
• Marketplace Lending refers to the segment of the financial services industry that uses investment capital and data-driven online platforms to lend directly to small businesses and consumers.  Marketplace lenders employ new, largely automated underwriting processes and, although remaining largely undefined, they make loans to higher-risk, lower-income borrowers.
• The Save Small Business Fund created by the U.S. Chamber of Commerce offers grants of $5,000 to provide short-term relief. Those qualifying must have between 3-20 employees, be located in an economically vulnerable community and face financial hardship due to the coronavirus pandemic.
• Intuit Quickbooks, Yelp and GoFundMe have teamed up to provide funds to the SMALL BUSINESS RELIEF FUND, a program providing grants, tools and resources to help during crises. Participants must be independently owned and operated and must not dominate their field. Each recipient also must intend to use the fund to help care for employees or pay ongoing business expenses.

Linen, uniform and facility services operators and suppliers should keep a close eye on upcoming legislation – and be prepared to take advantage of new funding programs. Congress is currently considering another bailout bill. Meanwhile, the SBA is constantly upgrading and refining its programs, while banks and other financial institutions – both online and brick-and-mortar – continue to offer assistance to their customers. The good news is that in these challenging times, linen, uniform and facility services operators have a wealth of options to consider – beyond PPP – should they need to raise cash in order to continue operations or make improvements to their businesses.