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In this edition of Expert Insights, Gene Marks, head of The Marks Group, provides practical advice for small business owners to make it through the COVID-19 emergency. Learn about funding options available (and practical strategies to save money) plus what the post-COVID-19 business environment will likely require.
Gene’s advice benefits those seeking monetary relief—delving into specific ways to actually receive funding from the Payment Protection Program, other lending options that small businesses may not be aware of, and tax breaks to consider. Looking ahead, Gene shares strategies for effectively re-opening business in the “new normal”, managing employees’ fears about returning to work, and lessons learned by being prepared for the unpredictable. Listen now.
Greg Corombos: Hi, I'm Greg Corombos. So our guest this week on expert insights is Gene Marks. He is a small business owner, he's head of The Marks Group and an accomplished speaker and columnist. He's also quickly established himself as a go-to source and understanding the congressional response to the economic damage inflicted by the Coronavirus crisis. For the next few minutes, Gene will guide us through what we need to know about the Paycheck Protection Program and other small business provisions. And we'll discuss other ways to keep small businesses alive and hopefully thriving sooner rather than later. And Gene, thanks so much for being with us.
Gene Marks: Great. Thank you for having me on.
GC: Well, the Paycheck Protection Program has been both a lifesaver for many businesses, and it's also been a source of great frustration for the cumbersome process. So let's start with the positive. Just how vital of a lifeline is the PPP?
GM: Well, it's been right now according to the latest data from the SBA, they've given out almost 2 million loans to small businesses, which is you know, quite a big number. It is, for the people that I've talked to that have gotten the money, it's provided an enormous sense of relief and sort of a lease on life, at least for the next two months, because that's what the program is for—it’s an eight week period of time, where they can use it to continue to fund their payroll and a portion of their rented utility. So a huge, huge help for a lot of businesses and unfortunately, a big frustration for those businesses that haven't received the money yet.
GC: You're absolutely right. So let's talk about that. Because in addition to the first round of funding running out pretty quickly and then taking a little bit of time to get replenished - What's been the reason for this process being such a headache? Why are folks having trouble navigating the process and then possibly even just getting the money?
GM: So there's been a lot of factors that have gotten in the way of businesses getting their money. First of all, if you're applying for money through the program, and there are still funds still available as we record this, you know, I could just tell you that you need to be aware of certain things. This “lessons learned”.
For starters, telling your clients to avoid the big banks, the big banks themselves have their allegations that they put, you know, larger clients ahead of smaller businesses, they're requiring businesses to already have accounts with them. They are, you know, slower to move. And I've found that if you're applying for a loan, through the Paycheck Protection Program, the best place to go to places actually: smaller community banks – I’ve heard really good things depending on the bank, and also the online, some online payment providers or lenders: On Deck Capital and Kabbage, PayPal, Square, QuickBooks Capital, all of those online platforms, have the technology infrastructure to handle your loan application. It's a more user-friendly experience. It's a faster process, and they can get the application in and get the whole process done faster.
You have the issue. Greg, to get back to your question is that the, you know, the SBA had sort of vague guidelines. So the bigger banks were more hesitant to move forward than the community banks. There was technology used both on the SBA side (the Small Business Administration) and on the banking side. And then there was just an overall lack of information for business owners. Plus a little bit of hanky panky, I think, being played by the bigger banks that's shut out some smaller businesses.
So, you know, if you, again, if you go with a smaller community bank or one of the online payment platforms, I think you'll be in better shape as long as the money's still there and available.
GC: Is there a downside to applying? In other words, if you're not sure whether to apply for PPP assistance? What advice would you give someone to help them decide what to do? I know there are certain conditions for having the loans be entirely forgivable. So what if you don't know if you can necessarily meet those criteria? Should you still do it?
GM: Well, there are two downsides. So one is—you named one of them—which is that it's possible that your loan won't be completely forgivable in the sense that say you borrow, you go through the formula which is based on your payroll, your monthly average payroll, and say you borrow, I don't know, $10,000 just for argument's sake. And then as it turns out, you don't use that money or you don't have that much payroll, or you don't restore your headcount and payroll levels to your preexisting levels by June 30, or the end of your loan. You won't be available or you won't be eligible for all the forgiveness that you're entitled to. And that's a potential downside.
Just bear in mind, though, that if you don't get all the forgiveness, Greg, it's just a loan. It's due in two years. You don't have to make the first payment for six months, and the interest rate is 1%. So it's a very low cost for this free money that you have for two years. And then you can worry about how you're going to pay it back then. But that's certainly one downside.
The second big downside is just deciding whether or not you can really use it. Some big companies decided that they could use it and then it turns out that they really didn't need it. And then the government had to get involved and wag their fingers. And now they're forcing companies that are publicly held or even now, companies are asking for more than $2 million.The Treasury Department has announced that they're going to be looking at those loans.
So even if you're a smaller business and know you're under that level, you know, these loans are designed for companies that have been impacted by COVID-19. And, you know, whether it's in the past, or you think it's going to happen because of COVID-19, you got to make sure that you are impacted by it. And then when you apply for the loan, you got to be really honest with your disclosures and representations and use the right documentation.
Because the second problem is: if you don't get forgiveness of the loan, you also have this issue of whether or not there could be potential fraud involved if you're applying for a loan that you really don't need. And I bring that upgrade because I do know people, clients of mine or whatever, that they really don't need the money and they're grabbing it, they're putting in the stock market. And that's not good because there are a lot of companies out there that really do need that money.
GC: What other provisions do small business owners need to know about whether it's the CARE Act or anything else that Congress or the Fed has done recently that could be of benefit right now?
GM: Okay. It's a great question. So first of all, there's going to be a bunch of small businesses that are not going to get paycheck protection loans. They’re going to run out of money again. I don't know if it's going to be funded again. And so the question is: what do you do? You have options. There are still places to go to get money. So let me list a few of them off.
The SBA is something called Economic Injury Disaster Loans. It's a direct loan from the SBA, long term 30-year payback, 3.75% interest. So its low-interest rates, fixed. It's a good deal. You can apply for it. You can even get advanced anywhere up to $25,000 on that loan if you have done business with the SBA before, even if not you can get an advance up to $10,000. It's a good resource for you. Just be aware that the SBA is very much behind in processing those applications. So you're gonna have to wait a little bit, but that's number one.
Number two, there's unemployment. If you are an independent contractor or a sole proprietor or freelancer, it may make sense to forget about applying for these SBA things. Just apply to your state, get unemployment from your state plus an extra 600 bucks a week from the federal government. The CARES Act now says that anybody that's an independent contractor, or a freelancer, or sole proprietor that's applying for independence –they’re eligible now for unemployment. So you can go to your state for that as well. So that's number two.
Number three are tax credits. So Greg, so for starters, if you're paying your payroll taxes, federal taxes, you don't have to right now. Starting back in March, you could take those federal payroll taxes and not pay them and defer them until 2021. You're still going to have to pay them. But basically, it is almost a year that you don't have to pay them if you need the cash for other things.
And you can also apply for tax credits. There's something called the Employee Retention Tax Credit. If you didn't get any Paycheck Protection money, you can use this credit if you've been affected by Coronavirus. You know, the impact on your business was significant. You can take up to 5,000 bucks as a credit per employee, per quarter against the payroll taxes that you owe, which basically means you're not only will have to pay payroll taxes, but you might get some money back from your payroll taxes. So talk to your accountant or talk to your payroll service company about that.
So there's the Economic Injury Disaster Loan, there's unemployment, there's Employee Retention Tax Credit. Go up to your state and city's websites because a lot of localities are putting establish grants and loans for local businesses. So look there.
Finally—well actually, not finally—corporations, Facebook, the Opportunity Fund, Verizon, JP Morgan Chase, Salesforce, they all have established funds for grants and loans to small businesses. So you can apply for them from the corporations as well.
And finally, there is something called the Main Street Lending Program, which will be starting very soon. It's for all businesses, but the minimum loan right now is a million bucks. It's backed by the Federal Reserve and the banks can get it out and have the backing of the federal government. Low interest 3-4% four-year loans. Another source of capital for you that you can use to help you navigate through all this.
Is that is that enough? I think I covered it all.
GC: I think you've covered a lot. Yes, we're talking Gene Marks. He is a small business owner, head of The Marks group. He's an accomplished speaker and columnist and, as you can tell, an encyclopedia when it comes to the government's efforts to help small business owners through this crisis.
Gene, in our remaining minutes, let's talk a little bit about some nuts and bolts ideas now for reopening and what that's going to look like. Obviously, it'll look a little bit different depending on what state you live in, and when the guidelines are relaxed and what type of business it is. I know you've written that restaurants probably won't look “normal” until you've got widespread testing and possibly even a vaccine, which is going to be a while down the road. For those who are able to open back up, what are some good ways to ramp up most effectively?
GM: Well, first of all, I have to say, Greg—I don't know, I can't speak for you—but I think for a lot of us, we're all going to look a lot different when this is all over considering the lack of shadowing and shaving.
But, you know, when we start reemerging from this and opening up our businesses, things will be different. I don't buy that this is going to change life forever and change business forever. I think that's a bunch of nonsense. I do think, though, that there will be some changes that I think will positively impact businesses and some precautions that we have to take right away.
So a few of them that we're going to see: first of all, at least for the next year, you have to be operating uber safe environments. I mean, really safe environments, which means that if you're going to have employees coming back to the office, you have to have a system for temperature checks, you have to have a system for making sure people are wearing masks or not, practicing social distancing, limiting meetings, having more people work from home (and we'll talk about that in a minute). We'll make, you know, having a system for wiping down surfaces in your office as well. And also once more diagnostic testing becomes available for businesses, getting those and making sure that your employees are frequently tested.
You have to be operating a safe workplace for your people. And I think companies are going to be falling over themselves to demonstrate that they're doing that so that they can assure their employees that they're a good company to work at. So look for that to happen a lot.
But then, you’re right. Technology is a big thing. I think there will be a big impact on people's opinions of the cloud, working from home. I mean, obviously, we're going to be seeing a lot more people doing that. I mean, for years I've been telling my clients this stuff is great—Zoom—it’s awesome. You know, CRM systems, cloud-based systems, you can have people work from home and they're like, “No, no, no.” Now they're like, “Gene, why didn’t you tell me this five years ago?” It does work. And I think it'll change the workplace model a lot as well.
So all of that is going to be an adjustment for us. Travel is going to be an adjustment as well. It's going to be slow. Getting back onto a plane and, you know, doing that. Conferences and meeting face to face, it will come back. It's just going to be a bit of a process and we're talking right now at the end of April.
I don't know when this is going to air, Greg, but mark me down. My prediction for you: by the end of the summer, I truly feel that there will be a few treatments for Coronavirus that will be readily available by our public healthcare people. So that, you know, unless you really have some bad conditions or you're very old, I think the general public will start feeling a little bit better that if they get it, they're not going to die, you know? Yeah, they might not feel so great for a few days, but you know, it'll, it'll lower that chance all in advance of ultimately have a vaccine coming next year. So I think that will help.
GC: All right, you're on the record, Gene. And so what about when we first reopen here? Obviously, a lot of folks are hoping to do that as soon as possible, but they want to do it responsibly. Let's say your state gives you the green light. You open up but you might have current employees who either have, you know, they got some health issues or they're just not sure that it's the right thing for them to go to work. How do you deal with that?
GM: Well, I mean, you have policies to deal with your employees. I mean, if you're allowed to reopen and you're reopening for business, your employees, you know, they want their jobs. I mean, you're well within your right to say like, we're open, we need you to come in, and get it.
It gets back to what I was saying about, you know, it's imperative to be operating a safe workplace for your employees. So they know that you're doing everything that you can to make sure that they can, you know, they can go to work safely.
If an employee refuses to come in, I mean, if they're, if they're impacted by Coronavirus, or their families have been impacted by it, they have legal rights not to come to work and you have a legal obligation to pay them for sick time. And you know, and then an additional 10 weeks of paid time off. You can get a tax credit for that, but you have an obligation to do that. So, you know, if they're not impacted by Coronavirus, and they still refuse to come in—I mean, that's a decision you're going to have to make with your employee about whether or not they're going to continue to work for you.
I will say one thing, you know, Greg, for years, I talked about the benefits of working for a small business as opposed to a big corporation and those benefits come to play now, because, you know, your business owners have relationships with their employees, deeper ones. And it is more of a familial type of environment. And, most of the business owners I know, you know—the good ones—they want to look after their employees and make sure they're doing the right thing that their employees are comfortable and safe. So, I think if you're working for a good company, you'll find your employer should be meeting you halfway with whatever concerns you have.
GC: One of the other things you've written on recently, Gene, is the survival of the fittest. You say those who were smart and capitalized before this all hit are the ones who will survive. The ones who didn't take those steps are the ones who probably won't. Come fall, you might see their storefronts boarded up and so forth. So talk a little bit more about what you mean by that. How do you best prepare yourself for an unforeseeable crisis like this where the government's literally telling you your business can't be open for an extended period of time? And for thoseeither who do emerge from this and those thinking about opening a business, whenever things get close to whatever passes for normal, what are the lessons for them as they prepare for the unforeseeable as well?
GM: It's kind of the- it's the nail salon story. It's like my neighborhood. You know, when times are good. There's like a nail salon, like every 500 feet. I mean, I bite my nails, I don't know who's going to all these nail salons, but there's a lot of them that are out there. And then when something like this happens, because I remember this so well back in 2009, when the last unprecedented recession. Half of them disappeared. And the ones that remained, you know, benefited from that. I mean, they picked up business because they were that much better. Well run.
And, it's the story that I have is, I have one client of mine, the guys now in his 70s but he's been a client of mine for like 25 years and he runs a construction company. They do drywall and contract construction in Philadelphia and he can have as many as 50 employees and sometimes as little as 10, depending on what's going on. He operates out of the basement of his house, and the guy has done so well over the course of his career, but he lives in a, you know, in a non-distinct house, drives a Chevy. You know, he's the Millionaire Next Door. And he said to me, Greg, that: “Listen, Gene, in this business, and in this world, things are never as good as they seem. And things are never as bad as they seem. But at any time the ‘you know what’ can hit the fan, you know, and you got to be ready for it.” And this guy always had cash in the bank. Because, when you live to the age of 70, and you've been running a business for 50 years, you've seen your share of recessions and downturns and you know, that when bad things happen, you've got to, you've got to navigate your way through that. And in the end, it's all about cash. And when I talk to a lot of business owners right now that are shuttered and waiting to get back, they've got savings. They've controlled their overhead. They've got things under control as it is. And they, they're not thrilled. They're not happy. But they'll be back, they'll be back. They know they don't look at their business like I had a great year. They know that this is like a 10 to 20 year thing that they should be looking at their businesses.
So the lesson is that you know, those are the people that survive these things. Those are the fittest, when these recessions come along because they don't overextend themselves. They don't behave irresponsibly. They take care of their employees, but at the same time, they're, they're smart with their money. And you know, that way they have more money. And when things come down, like this, it's all about how much money you have to see yourself through it. And those are the people that are smarter. So the lesson if you're running a business and you make it through this, you’ve got to make sure you always have three to six months of cash on hand or liquidity. You gotta. Because this is going to happen again, in some way, shape, or form and you're going to be faced with this issue again. Now that you've learned what can happen, you've learned that having cash in the bank is what sees you through these things and that's what separates the fittest that survive and the weakest that don't.
GC: Excellent advice and a lesson that’s been very painful for some, very valuable for others as this has played out. Gene, always great to have your time and your insight. Thank you very much for being with us as always
GM: Great, thank you for having me on.
GC: Thank you. Gene Marks is a small business owner, head of The Marks Group, accomplished speaker and columnist. I'm Greg Corombos, reporting for Expert Insights.
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