How Entrepreneurs and Small Businesses Can Survive the Pandemic

Sona Sulakian
Entrepreneurs and small businesses are struggling around the country. Women and minority owned businesses have been particularly hit hard. 

For example, sa
lons and barber shops, which are largely owned and operated by women and/or minorities, are struggling financially because they can’t offer takeout and curbside pickup like restaurants and shopping stores. They either have to close down entirely or purchase protective equipment and operate at limited capacity. 

A survey by the Professional Beauty Association (PBA) showed that only 54% of salons surveyed thought they would have the financial resources to reopen, and 25% didn't think they would be able to reopen. 

If your business is among those struggling through this pandemic, a lawyer can help you do things like negotiate to lower the rent on any commercial space you lease (or have it forgiven) and negotiate contracts and past invoices with vendors. Our lawyers start at just $249 per service, and we offer interest free payment plans. 

Here are some other helpful resources. 

Coronavirus Relief Options: Loan Options and Forbearance
The deadline to apply for a Paycheck Protection Program (PPP) loan ended on August 8. If you applied for one, that's great. The SBA will forgive these loans if the employee retention criteria are met and the funds are used for eligible expenses, which incentivize small businesses to keep their workers on payroll.

If you missed the deadline, don't worry. The SBA is accepting new applications for Economic Injury Disaster Loans (EIDL), which provides assistance to businesses experiencing a temporary loss of revenue due to COVID-19. These funds can be used to cover a variety of operating experiences, including healthcare benefits, rent, utilities, and fixed debt payments.

Note that you cannot use PPP and EIDL loans for the same purpose.

You can also apply for the Express Bridge Loan program, which allows small businesses who have a relationship with an SBA Express Lender to get up to $25,000 quickly. This loan can be used while waiting for applications for other loans to be accepted.

The U.S. Small Business Administration (SBA) is providing debt relief to small businesses during the pandemic. The SBA will pay 6 months of principal, interest, and any associated fees for borrowers for all current 7(a), 504, and Microloans. Paycheck Protection Program loans or Economic Injury Disaster loans do not qualify for this relief.

This relief will be automatically provided:
  • For loans not on deferment, SBA will make the next six monthly payments automatically
  • For loans currently on deferment, SBA will make six monthly payments after the deferment period ends
  • For loans after March 27 and disbursed before September 27, SBA will make the first six monthly payments
The SBA is also providing automatic deferments through December 31 for current SBA Served Disaster (Home and Business) loans. However, interest will continue to accrue on the loan and the deferment will not cancel any pre-authorized debit or recurring payments on your loan.

Many banks have also offered forbearance on businesses loans, check out the American Bankers Association’s A-Z list of coronavirus relief programs.

Please contact your lenders if you have any questions.

When to file for bankruptcy
Sometimes, it makes the most sense just to cash in your chips. If you want to shut your doors, and perhaps start a new business next year (when things are hopefully better), don't feel bad about it.

One of our lawyers can help you decide if bankrputcy is the best choice, and if you should  file for either Chapter 7 or Chapter 11 bankruptcy (farmers and fishermen file for Chapter 12).

Most small businesses file for Chapter 7, which can help either close down your businesses or reopen in the future. Chapter 7 liquidates a business, selling off all the assets and distributing the proceeds to creditors. Many businesses won’t be able to reopen with the economy, so many owners will end up filing for Chapter 7 to eliminate debt.

Even after filing for Chapter 7, some business debt may remain, so it’s important to discuss your options with a lawyer. Chapter 7 may also make you personally responsible for business debt.

Chapter 7 is the cheaper alternative and often works well if the business owner would rather have an appointed bankruptcy trustee sell the company assets. Even then, Chapter 7 filings are rarely simple.

Some individuals choose to close the business without filing for bankruptcy, and file for individual Chapter 7 to clear any personal liability for business debts.

A company that is still producing income but is struggling to pay some bills will probably file for Chapter 11. Through Chapter 11, a business can reduce and restructure debt payments so the company can stay in business. Although Chapter 11 can be costly, special rules for small businesses affected by the pandemic can allow these businesses to stay open.

Small businesses can also file for Chapter 13 to set up a 3-5 year repayment plan. Unlike Chapter 7, this filing allows you to keep your homes, cars, and businesses.

What to say to a landlord of commercial property
It's best to start negotiating with your landlord before you run out of money, in which case your options will be severely limited. If you aren't comfortable doing so, a lawyer can help. 

Your first step is to find and review your lease. Do you have personal liability on the lease or did you opt for an alternative like a safety deposit? If you do not have any personal liability on the loan, you are in a better position to limit your losses.

Remember that rent prices are negotiable, even more so in light of the current crisis. In fact, a recent study reports falling rent prices. The current crisis has shifted demand away from the more expensive cities as employees transition to remote work. For example, San Francisco rent is down over 9% compared to last year.

Another report shows the largest decrease in rent payments received by landlords since the start of the pandemic, down 24% since March. This means landlords are looking for the ideal tenant even more so today.

So before you strike a bargain with your landlord, make sure to research the current trends. Research the housing market in the area, and find out the prices of comparable units.

Generally, landlords are more likely to lower the rent:
  • if the unit has been on the market for a long time (suggesting the landlord is having trouble finding a tenant), 
  • if the asking price is far above that of comparable units, or 
  • if you’re the ideal tenant with steady income and a good credit history.

We can help connect you with a lawyer at an affordable rate to assess your options and figure out what’s best for you and your businesses.

This article is intended to convey generally useful information only and does not constitute legal advice. Any opinions expressed are solely those of the author, not LawChamps.

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