Financial Tips for Small Businesses During a Crisis
Sound Credit Union (Sound) presents Financial Tips for Small Businesses During a Crisis webinar. This webinar is meant to provide small businesses with financial guidance to help them maneuver through the current economic challenges that they may be facing due to COVID-19.
Our panelists include:
- Lyman Williams, who’s been with Sound since 2015 as our SVP/Chief Lending Officer. Lyman has over 15 years of experience in business and consumer lending.
- Kasey Brooks Winkler who joined our team at Sound as a Business Loan Officer in 2019. Kasey has been working with small businesses for the past 10 years and has been her in the Puget Sound for the last three and half years.
- Sally Parks, who has been with Sound for over 5 years and in the industry for over 30. She is one of our Business Services experts.
- Host: Jennifer Reed, the Vice President of Public Relations.
The impact of small businesses
In 2019, small businesses accounted for 99.5% of all small businesses in the state of Washington. Those small businesses also employ 1.4 million people and through this, more than half of these business have 100 employees or less. And the businesses have helped Washington state to become the 12th largest economy in the United States.
Before COVID-19, small businesses (those with 500 or fewer employees) provided nearly half of all US private-sector jobs. And currently 54% of those jobs are vulnerable due to the COVID-19 outbreak.
Due to the pandemic, businesses have been left scrambling to survive. They don’t know what to do or who they can trust. Sound’s lending and business services experts offer small businesses some tips to help them navigate through this crisis.
What assistance is available to Sound business members and the community due to the COVID-19 pandemic?
LYMAN WILLIAMS (LW): Thank you, Jen, some of the things that we’ve been doing and for those members of ours that have existing loans with us, if you’ve been adversely impacted by the affects of this pandemic and this economic shutdown, what I recommend is that you reach out to us. Let us know what is going on because we’re willing to work with you, find a solution that will work and make the most sense.
Typically, some of the options that might work best is a loan deferment and, what that essentially is, is an extension of your current maturity date, so it pushes the loan date out.
There’s also a loan forbearance, which essentially pauses your regularly scheduled loan payments for a period of one or more months. But then it balloons – it’s very common practice in the mortgage industry and it might make sense for you to be able to go down that road.
Other options include converting payments to interest only for a short period of time; we’ve explored that for a number of our business members.
Another form of assistance that we’ve been very active in is with the SBA on partnering with the PPP loans. These Paycheck Protection Program loans I’d consider them to be some of the best deals in lending history and the reason why I feel that way is because if they’re used appropriately the whole loan can essentially forgiven. So, this loan, it functions more like a grant in that matter. The objective behind that program is obviously is to retain jobs, in fact it’s the namesake of the program: it’s the Paycheck Protection Program. For any portion of your loan that might not be forgiven, you are able to repay that back at a very low interest rate – one percent – which is really unheard of in conventional lending. Granted that is at a shorter term because these loans do have a maturity of two years from its origination date.
What affect can this have on a business and their credit?
LW: That question is very understandable, especially as you may have spent years and years building your great credit without any problems along the way, right up until this pandemic. Now you’re finding yourself in uncharted territory.
The CARES Act, it requires lenders, like us, to report to credit bureaus that consumers are current on their loans if they’ve sought any relief from their lenders during this pandemic. The credit reporting component it does play a stronger role on consumer loans than I would say it does on commercial or business loans due to how these loans are reported to the credit bureaus. But when we make a modification, such as a payment deferral or a loan forbearance, it’s going to report to the credit bureaus as such. While there’s still reports on your credit report, the deferment or forbearance mark won’t directly hurt or help your credit score, it’s really a neutral action.
These accounts can continue to impact your credit scores though. One example I’ll give you is that your loan will continue to age, which lengthens your credit history and ultimately helps your credit score as you continue to pay as agreed.
In all cases, I’d continue to make sure you make your regularly scheduled payments until you receive notification that any of your payments have been deferred due to the time it may take to process that.
Thinking about the funding and different options that are available, what short term funding options might someone consider?
LW: That’s a good question. I would reiterate that the SBA PPP Loan program. If you’ve yet to receive one of those types of loans and are a current Sound Credit Union member, then please reach out to us and we’ll work with you to try to get funding before the funds run out. I recognize that that time is short because the funding – although as of today it’s still available – we do expect that to be used soon.
Initially we did have a tidal wave of applicants and an overwhelming amount of work when this program was first launched, and we’re pleased to see that there are still appropriated funds available from the government at this time. As such, I would really recommend you act now if you haven’t received one.
If you are not currently a Sound Credit Union member, then there are still lenders taking applications. Online lenders especially would be a good option. There are also local government programs available that you could explore so look and see what’s out there and applicable to your business and what you might be eligible for.
As far as other options, we have for short-term financing needs, we have a pretty simple loan that came about as part of our response to this pandemic in the form of a short-term personal loan. What we did is that we launched the Member Assistance Program, these MAP loans, which is available on our website and it’s a fully electronic experience. It’s a very fast process, from application to seeing the money hit your account.
Also, there’s other options on the business lending side as well and we can help create a deal or a plan that will work best for you in your situation. In all cases, our underwriting hasn’t tightened up like a lot of other lenders out there. We believe in being consistent and we feel that our existing or pre-COVID-19 underwriting practices are conservative but fair as it works to balance out the needs of our membership, our community, and ultimately the health and performance of our loan portfolio as a whole.
What about long-term planning? Is that something a business should consider doing as well?
LW: It very well may be. I would say that every business’ circumstance is going to be different. Some industries have really thrived and grown quite well during this pandemic and there’s others that have suffered dramatically due to the mandated shutdown. Then there are all other businesses that fall somewhere along that broad spectrum.
With these long-term financing options your payments are going to be drawn out over a longer period of time, ultimately that will reduce your monthly payment and it frees up cashflow during what I would consider to be an absolutely critical time. And we know “cash is king”, right? And cashflow ultimately is the lifeblood of any business. So if you don’t have an operating line of credit or access to any sort of line of credit, then I would recommend exploring that option as these are very useful lending products that ultimately serve to bridge timing gaps between when you get paid from your clients and your customers and when you need to pay your own employees or suppliers, vendors, etc. We do offer these short-term renewable loans depending upon on the size you are requesting…they’re unsecure for smaller balance loans or secured with collateral for any balance loans that would be of a higher dollar amount.
In regards to finances, what should a small business consider as the state begins to recover from the ‘Stay Home, Stay Healthy’ order?
LW: Well, I’m sure every – you know – we’re all looking forward to being able to get back to business as usual, at least as much as will be possible as we move forward. But what business owners need to be mindful of and what I’ve really have seen that what I’ve considered so impressive, is how flexible and creative business owners have been in being able to accommodate these mandated restrictions as best as they can within their own business model. It goes back to that saying, “Where there is a will, there is a way.” It’s really proven during this crisis that business owners have always been able to pave that path in moving forward despite adversity in front of them.
With respect to ideas that businesses should consider, I’d recommend watching cashflow expenditures and revenues closely. Matching any timing gaps that you might have with available cash from operating lines of credit, that might be warranted. Also, depending on what industry you work in, there’s likely going to be or there has been some sort of supply chain disruption. Just because your business hasn’t been impacted yet doesn’t mean that it won’t be soon. As such, I would recommend that you prepare now and look at alternatives for obtaining your necessary supplies and orders if possible.
For any other loans you might have, especially loans outside of Sound Credit Union and if you anticipate a need for any sort of payment relief, I would strongly recommend that you reach out to your creditors now and begin that process for a loan deferment or modification of some sort. Although it does extend the overall term of your loan, I would consider that to be a reasonable tradeoff for the relief that it does provide during a time of need.
I’d also recommend holding off on any major purchases if needs be.
One thing that came to mind was reaching out to your business insurance agent. Depending upon your business, you might have coverage that provides assistance for any financial losses suffered out of the inability to bring a project to completion. Granted this doesn’t apply to all businesses but it would certainly worth looking at and see if it applies to you.
Another recommendation would be if you can bill your clients and customers sooner or collect faster, that might be a necessary option. Sometimes that’s going to be a lot easier said than done but you may want to consider changing the terms that you offer on an account if possible. That might not be viable depending upon the status of your customer base but it’s certainly something to look out for.
I would also reach out to any suppliers or especially landlords if you’re leasing or renting space now for any modified payment terms that they might be able to offer to you.
And finally, if you maintain inventory, I would say now is a great time consider cancelling or potentially delaying any planned purchases. You could also get creative with the inventory that you have on hand and ask yourself the question, “Is this something I can return or exchange with any of my vendors? Are there any ways to incent my customers to buy inventory that I have currently?” Using some sort of discounting award or other incentive.
During this time when people are asked to stay home, what has Sound done to help connect with our members? To help them continue to run their businesses and access their funds and meet with our staff here at Sound Credit Union?
LW: Yeah, that’s a great question. There’s a lot that has been done and is continued to be done. We’re seeing more and more members take advantage of online banking, that’s for sure. What I’ve seen on the lending side is a lot more activity on electronic signing of documents. You may have experienced that through us with DocuSign.
On the consumer side, a fully electronic loan payment deferral option we have launched and is available on our Member Assistance Program page. Also working with the business lending team for any of their business loans.
Some other things that we’ve done is virtual meetings, so we do have the capability to meet with our business members through virtual meetings, through Zoom.
Automated messaging for borrowers would be another thing that we’ve implemented and various business lending queues if you are one that had worked with us through the PPP program you may have seen that messaging come through.
Then the last thing I’d add as I conclude is that we’re working on a member experience currently that would be similar to using TurboTax for the PPP loan forgiveness application documentation. It would be fully online, and we could also assist members that don’t have online access through utilizing our business lending team. But we look forward to being able to provide a very efficient solution as these loans get to that stage where the forgiveness component is something that the business members are going to be looking to apply for.
What business loans are we offering at Sound to businesses who are feeling the economic impact from this crisis?
KASEY BROOKS WINKLER (KBW): You know we’ve offered the popular SBA PPP loan and while those are winding down, we are grateful to have helped so many business members and employees in our community and will continue to offer those loans to our Sound Credit Union business members as long as the funds are available. Outside of the PPP, what is going to be extremely helpful is liquidity. Do you have the cash reserves to assist your business weather the storm and make payments on your new debt request? Preferably we like to see a minimum of three months of cash reserves.
Business debt refinance is also an option as well as cash out refinance on commercial real estate. Is this debt refinance going to help put more money back to your business? We’re in a low rate environment and it is a very good time to look at debt refinance as an option to save money. This is a time we need to work together and get creative. If it makes sense, we can provide things like interest only payments for three months to help while we reopen the economy.
How can a small business owner be proactive with their financial institution and vendors that they have outstanding balances with?
KBW: Yeah, you know to reiterate what Lyman has said, it really is to contact your vendors. Our state regulators have encouraged lenders to work with their borrowers, so I encourage all the small business owners to contact their landlords, lending institutions, suppliers and ask what assistance they are providing for businesses that are affected by COVID-19. Keep the line of communication open with them. Let them know how COVID-19 has impacted their business and your plans to reopen once they are able.
What if my financial institution cannot help me? I think we’ve heard that from quite a few businesses out there. What would someone need to do to begin working with us here at Sound?
KWB: I’d advise those who are interested in you know seeing what Sound Credit Union can help with, to reach out to their local Sound Credit Union branch and get connected with a business loan officer to setup a time to meet virtually and discuss their needs and how we’re able to assist.
Any advice for small business owners that are positioning themselves to succeed as we begin the recovery phase of this crisis?
KBW: Again, this is a time we have to get creative. While small business owners have the time availability to maybe experiment with new ideas that they’ve always thought about doing but never had the time, utilize the time to clean out odd the jobs that they’ve been meaning to get to and also connecting with their employees and make adjustments depending on those employee’s circumstantial needs.
During this time when many people are asked to stay home, how can a business member meet with you?
KBW: Yeah, we’re so fortunate to live in a time where technology is literally at our fingertips. We have the ability to virtually meet with business members over Zoom, things like GoToMeetings, conference calls, and even email. There should really be no reason to hesitate to reach out to your business loan officer to setup a time to quote unquote meet.
What options are available to business owners who can’t leave their homes to deposit checks their business receives?
SALLY PARKS (SP): Sound Credit Union offers remote deposit capture which is a check scanning device that’s connected directly to your computer. You scan the checks and they’re automatically deposited into your checking account right away. There’s no time lapse on that. And then we also offer mobile banking. And so, businesses are able to take pictures and deposit checks directly into their accounts as well.
How can a business do payroll or make a payment without having to write a check?
SP: Sound is an ACH account originator. And so, our members can make direct deposit payroll for their employees through our business online banking. They can make payments to vendors and they can also collect payments for payments due.
At Sound Credit Union our purpose is to stand with our members, employees, and community through all waves of life. We know this is a difficult time for many people in our community right now. What we’ve experienced over the last several months feels like a tsunami. But this too shall pass. Together we can work through this crisis.
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