Small Business 2020 –How do you spell Opportunity in a Recession

This week we paid the last payroll of the first quarter of the Virus. We have endured Shut Down, Financial Panic, Protests and Riots. We have learned to shop with a face mask on, issue staff policy for social distancing, and made a revised marketing plan for the year. What else could go wrong?

There are three things that still darken the horizon; Banks have insufficient reserves, Global Banking system is unstable, and the Virus is returning with force.

2008 Redux for US banks

The banks are in a position to repeat their 2008 melt down. In 2008 the culprit was CDO’s based on mortgage loans, at a time when a critical mass of people defaulted on their mortgages. Currently the risk is in CLO’s, a similar instrument based on Collateralized Business Loans. These instruments are held by Banks, and are dependent on payments by businesses. Those same businesses that are struggling to maintain sales and market share against a public that is socially distanced. The key time period is August 2020. When 2nd quarter earnings reports come in, CARES Act! funding has run out, mortgage relief, renter relief and unemployment relief will all be past their 90 day limits. If individual payments are not made then bank collateral will melt from the bottom up.

Global Banks under pressure

Globally, banks are dependent on their loan customers making payments. In addition, most global banks have substantial investment arms. As we get to August Earnings Season, we will get our first look at how these assets are performing. Areas of concern involve HSBC with substantial assets in China, Hong Kong, and also the largest bank in the UK. Since we no longer know what country Hong Kong is, putting treaty, import and export status on hold, several banks are highly invested in the HK economy. In addition, nearly every bank worldwide has substantial interest that Oil stay above $30 per barrel. As we saw with Cushing Crude in May, the $30 benchmark is not a given.

Virus Wave Returns

We are now seeing several states reporting substantial increases in Virus cases. The US as a whole was holding steady at 20,000 new cases a day for nearly five weeks. That number is rapidly moving higher now. The curve is rising. There is no question today that the virus is again out of control in half the US states, including our own. If the current rate of increases takes hold, we could see 50k cases per day by August, and discussion of a far more drastic shut down of the economy.

How to Plan for What Comes Next?

Is Congress going to play Santa, or Marie Antoinette? Are protests going to fade out, or strengthen? Will the US Treasury continue to spend taxpayer money to prop bonds and stocks (That’s Capitalism Baby!) Small business remains trapped between the disaster and the goodie bag.

Be careful, be grateful, and be patient. Only time will tell which decisions we make today will turn out to look smart in the future.

3 New Revenue Sources for Small Business in the CARES Act

We are all hurting now. The normal ebb and flow of business in America has been throttled by stay at home orders. Even if you do not own a restaurant or bar, even if all your workers can work remotely, you are probably highly impacted by frightened customers and small business. This is a huge blow to ego and self esteem.  It becomes hard to concentrate. Everything seems like an emergency.

I have been greatly relieved by the thought that the CARES Act that passed last week will assist us in ways that are worthwhile.  Here are a few things I’ve found that can benefit CompanionLink, our vendors, friends and relatives during this troubled time.

Pandemic Unemployment Insurance

A new category of Unemployment Benefits has been created to help Self-Employed and Gig workers. These new benefits are handled through your state.  If you are Self Employed and have reduced business because of the Stay at Home order, or even if you are too concerned to go to work, you qualify for this benefit.  Apply for Unemployment through the state.  Even if the weekly amount is small, because your income is low, you will be eligible for the $600 additional weekly benefit (roughly $2400 per month) through July 31, 2020.  So for four months, roughly $12,000 will flow to everyone who is unemployed. This benefit is taxable income so be sure to calculate your withholdings. 

I would guess that this benefit will be extended as long as the Lock Downs continue, which may run through the end of the year.

https://www.cnn.com/2020/03/25/politics/senate-stimulus-unemployment-benefits-coronavirus/index.html

Paycheck Protection Program

The Paycheck Protection Program from the US Small Business Administration will guarantee a loan to your business, and after a time, will forgive up to 100% of the loan amount. 

This program is extended to Nonprofit and other types of business that do not normally qualify for SBA loans. You do not need to be turned down for credit to be eligible for the loan. 

The loan amount is 2.5 times your monthly payroll, benefits and rent.  After 60 days, if you spent this money on payroll, benefits and rent, then the amount is forgiven. Here is the best part; the loan forgivance portion is not considered taxable income to your business.  This program is administered by your local bank provided they are an SBA lender.  Call your bank for details.  Note:  The application forms have not been created yet, and full details are not yet available. Your bank will help you through this process.

https://www.sba.gov/funding-programs/loans/paycheck-protection-program

Google and Facebook Advertising Credits

Both Google and Facebook have announced Small Business grants, and/or advertising credit.  For Google, the advertising credit is automatic and will be added to your Google Ads account.  For Facebook you need to apply, and details have not been sent yet.  Keep an eye out for similar credts from Apple, Amazon, and other large vendors.

https://blog.google/inside-google/company-announcements/commitment-support-small-businesses-and-crisis-response-covid-19

https://www.facebook.com/business/boost/grants