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Small business owners worry they won't survive coronavirus without federal loans, but experts say they have options

A person waiting for a bus is reflected in the window of a temporarily closed shop in San Francisco on April 15, 2020.
Bloomberg

Situated on a Brooklyn city block lined with a dry cleaner, several eateries and a preschool is Woods Grove, a small storefront embellished with gold lettering. The modest exterior houses an eclectic mix of gifts and vintage items, from candles and soaps to scarves and jewelry.

After two years in Brooklyn, Woods Grove's business was taking off, co-owner Robby Schnall tells CNBC Make It. "These are the seeds that we'd been laying for two years, and they were really starting to take hold and grow," he says. "We were just so optimistic — we were doubling down on orders and hiring more people." 

That is, until the coronavirus pandemic hit. Since New York's stay-at-home order went into effect on March 22 and forced the storefront to close, business is down 90%, Schnall says. "It's crushing," he adds.

He's been forced to dip into the business's savings and furlough its two part-time workers and one full-time employee. "We're now looking for ways to just stay afloat — as much as the government has said your landlord will not evict you, they still want their rent...as well as all the other expenses coming to us for all the orders we placed," Schnall says. 

The co-owner of Brooklyn-based gift and vintage shop Woods Grove says the coronavirus pandemic has had a "crushing" effect on their business.

About 70% of small business owners, including Schnall and business partner Chris DiChiaro, have tried to apply for the $350 billion Paycheck Protection Program, which offers forgivable loans, according to a survey by the National Federation of Independent Business. Of those that applied, about 20% reported that their loan had been approved and funds deposited as of April 17. Yet roughly 80% say they are still waiting to hear where they are in the process.

About half of small business owners have applied for the other major federal loan: the Economic Injury Disaster Loan program [EIDL], which provides disaster assistance loans. Of those that applied for this loan, NFIB's survey found about 10% reported receiving funds. 

Funded by the $2 trillion coronavirus stimulus package Congress passed last month, both of these loan programs have experienced issues since the application process opened to the public. The PPP money ran out last Thursday after the Small Business Administration approved 1.66 million loans from nearly 5,000 lenders. About four million businesses have already applied for more than $380 billion in EIDL funds, yet Congress only allocated about $17 billion for the program.

Congress and the White House are working on a legislative package that would inject an additional funds into loan programs for small businesses, including the PPP and the EIDL program. Yet until more money is added and distributed, many small businesses are worried about their survival.

Unless businesses have a nice cash reserve or can find a way to remain relevant and reach shoppers through online sales, they are "very ripe for failing if they don't get immediate relief," Bob Prosen, a business crisis management advisor, tells CNBC Make It. 

Even if they're struggling financially right now, small business owners do have options to help their companies stay afloat until Americans establish a new normal. Here are seven things experts say owners can do right now to help keep their businesses on firm financial footing. 

1. Keep bringing in business

While it can be easy to give into panic, small business owners need to focus on establishing a plan of action and prioritizing which steps come first, says Joe Pascaretta, a small business expert with Dun & Bradstreet.

"It's very easy to get distracted, with the media and with what your neighbor is doing, but you have to focus," Pascaretta says. Business owners need to prioritize the essentials: managing their cash flow and keeping money coming into the business. 

Jeppie gift shop, located in Beaver, Penn. had to shut its doors after the state issued stay-at-home orders, but owner Jesse Arrington is finding creative ways to keep his business going online.

That's exactly what Jesse Arrington, owner of home accessories shop Jeppie, located just outside of Pittsburgh, is doing. Arrington has completely retooled his business over the last few weeks to maximize online sales, which were only a small part of his income previously, he tells CNBC Make It. He now spends a majority of his day taking photos and posting new products before hand delivering local orders within 15 miles of Jeppie. 

To create a unique experience for shoppers online, Arrington watched online YouTube tutorials to improve his photography skills so he could have custom product shots and has jumped into social media sites like Instagram. 

2. Limit expenses

Now is the time to hoard cash, Prosen says.

That means cutting all non-essential expenses including company credit cards, travel and employee 401(k) contributions, as well as putting a hold on any raises, bonuses or overtime pay for workers. "You gotta do what you have to do," Prosen says. 

Small businesses should also try to limit inventory purchases, says wholesale marketplace Faire, which supplies to independent retailers like Woods Grove. While Schnall says the store tends to stock a lot of seasonal products, this year he plans to rely on the inventory they already have for Mother's Day and is planning to do the same with Father's Day gifts.

3. Don't navigate this alone

Most business owners have a network of experts that can help them navigate this challenging time, Pascaretta says. That includes any attorneys or certified public accountants you may work with. Schnall worked with his bookkeeper to gather and update all the paperwork needed to file for the PPP and EIDL loans.

It's important not only to get the right guidance on the rules and regulations from experts, but also get the most up-to-date information, since many of these programs are changing daily. 

If you don't have an attorney or tax professional you can contact, Rocket Lawyer launched a website with free advice, information and legal documents for business owners to help guide them through many common business issues. It also contains a worksheet that can help business owners determine what benefits and loans they are eligible for. 

Business owners can also reach out to colleagues and local business associations within their communities. "Seek out other business people that you've had relationships with over the years, renew the friendship," Prosen says. Ask what they're doing and offer your own ideas. "Maybe somewhere in the midst of all that conversation, there's something you've overlooked."

4. Get creative

If your business is shut down right now, think about diversifying. "Offer different services," Pascaretta says.

For Haley Solar, owner of Haley Solar boutique in Los Angeles, the coronavirus pandemic proved to be a "huge shock to the system," she tells CNBC Make It. She typically sells handmade clothing designed using up-cycled fabrics and materials, offering alterations right in the store while customers wait. 

Haley Solar turned her Los Angeles clothing boutique into a mask business amid coronavirus.

But with the shop closed and no loan money on the way, Solar went back to the basics to find a way to generate sales: her sewing abilities. In addition to selling beauty products and accessories, Solar is now focused on selling handmade masks. She sews an average of 30 masks a day. 

"Your job is to just bring money in the door," Solar says. 

5. Look beyond PPP and EIDL loan programs

While the PPP and EIDL loans are getting a lot of attention, there are other programs available that may be able to help small businesses. The U.S. Chamber of Commerce announced the Save Small Business Fund, which will provide $5,000 grants to small companies in economically vulnerable communities that employ between three and 20 workers.

The Small Business Administration is offering business owners the chance to apply for SBA Express Bridge Loans in addition to PPP and EIDL loans. This program is designed for companies that already have an SBA loan to access up to an additional $25,000, which is meant to be a "quick injection [of cash]," SBA Great Lakes Regional Administrator Rob Scott tells CNBC Make It. Companies can get funds in a matter of hours through an approved lender such as Huntington Bank, KeyBank, LiveOak and U.S. Bank. 

The SBA also backs traditional loans through its lenders. Keep in mind that the SBA doesn't lend money directly, it guarantees loans provided through SBA-preferred financial institutions such as banks and microlenders. SBA-backed loans do have to be repaid, but they have low interest rates and good lending terms, Posen says. 

Small business owners can expect these SBA-backed loan applications to be processed "within a few weeks," Scott says. For new and existing borrowers, the SBA has set up a debt relief program that will automatically pay all loan payments for the next six months. This includes principal, interest and fees.

The Federal Reserve also indicated that it's working to establish a Main Street Lending Program that will provide up to $600 billion in loans to small and medium-sized businesses. Specifically, the Fed will offer four-year loans to companies that employ less than 10,000 workers or have revenues of less than $2.5 billion.

Several states, cities and municipalities are also offering businesses loans and grants right now. In Alabama, businesses with fewer than 50 employees can apply for interest-free, 180-day loans of up to $25,000 through the Birmingham Strong Emergency Loan Fund. California rolled out its Disaster Relief Loan Guarantee Program, which provides loan guarantees of up to $1 million for small businesses with less than 750 employees. 

Private lenders may also be able to help, Scott says, specifically pointing to programs set up by Huntington Bank and JPMorgan Chase. But owners need to keep up with the news, Prosen says. You don't want to find out about a new loan or grant program days or weeks after it launches and miss out on funding, he says. 

Getting an emergency loan is just part of reviving your company, says Jack Siney, CEO of government spending database GovSpend. Struggling businesses should also look into tapping into the unprecedented surge in government spending, Siney says.

"The government is literally awarding contracts now within hours across an array of industries including medical supplies, beverage, flooring, clothing, landscaping and many more," he explains. Many floundering companies don't even know about these opportunities.

6. Consider last resort options

For many small business owners, the company is their primary source of income. They're "risking their fortune and their family's safety net" if the business goes under, Prosen says. And depending on how the business is set up, sole proprietors and those in a partnership could end up being personally responsible for business debts.

If your business is floundering, it may be time to consider some "last resort" options, Prosen says. One option is to consider mortgaging your home, either by refinancing or taking out a home equity line of credit. While this is not typically recommended, it could buy small business owners some time to get back on their feet, Prosen says. 

You can also ask family and friends for a loan, especially if you only need a small amount to tide you over. If that's not an option, look into microlenders, Prosen suggests. The Aspen Institute's Business Ownership Initiative has a national database on the scale, effectiveness and outcomes of non-profit microlending organizations. However, no matter who you lend from, you need to read the fine print and reach out to an attorney or CPA to review the terms before you sign anything, Prosen says.

Bankruptcy is another option and could offer a company the ability to stay open and make smaller monthly payments to creditors. Of course, bankruptcy is going to affect businesses differently and will depend on which route you take. Similar to personal bankruptcies, however, it's only a good option if you've carefully considered your choices and understand what you're getting into. Yet for some, it may be the only choice, Prosen says. 

7. Prepare for tomorrow

"We will live to fight another day," Prosen says. "But you need to be smart and take control." When the coronavirus pandemic ends, business owners need to be prepared, understand their financial situation and maximize every opportunity. 

Even if you had to lay off and furlough employees, Pascaretta recommends staying in touch. If your business reopens, you may need those employees to willingly come back to work. 

"When small businesses are panicking, they're forgetting about the needs of their people," Pascaretta says. "Communicating with your staff, your team and showing you care...is super important."

Check out: The best credit cards of 2020 could earn you over $1,000 in 5 years

Don't miss: As small business loan money runs out, many approved businesses still await checks or clarity on strict guidelines

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Confusion over the PPP program
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