Local lenders going above and beyond

Twice in the last two months, I’ve heard the concept of simple, complicated, and complex problems. A simple problem usually has a series of steps you can follow to solve the problem. Baking a cake with cake mix using instructions is a simple problem. A complicated problem is difficult to solve, but there is a technical solution. Sending a rocket into outer space is a complicated problem. Thanks to the laws of physics, with enough math and science a replicable solution can be found. A complex problem does not have a series of steps to follow to achieve success. Raising a child is a complex problem. As I’ve found with my three kids, raising one child does not provide a successful step by step approach to how we can successfully raise the other two.

The COVID-19 pandemic has created a series of complex problems. There is no step by step approach to make sure we are safe, and our small businesses can survive. For small business owners, this is incredibly stressful and requires difficult decisions on a daily or hourly basis. The federal government has created stimulus programs to assist small business owners, but there isn’t a step by step approach to choosing the right program.

The Paycheck Protection Program (PPP) is the $349 billion dollar relief program to help small businesses keep employees employed. The basics of the PPP is small businesses can apply with a local lender who can offer up a loan that is 100% guaranteed by the Small Business Administration (SBA). Small businesses can apply for 2.5 times their average monthly payroll through this program. If a small business uses the PPP loan for payroll, utilities, and rent or interest on a mortgage over a two month period, the loan basically turns into a grant as the loan is forgiven and the bank is made whole through the SBA.

According to the Wall Street Journal last Friday, 550,000 of these loans worth $141 billion have been approved. Our local banks have stepped up for this program. Banks received guidance on how to run the program the night before the program went live. Our local banks and bankers figured out the program and then worked all weekend and put in extra hours every day last week to help our small businesses get the aid they need. As national news stories of big national banks limiting the amount they would loan or process, our local banks went above and beyond to help our small businesses.

The PPP should provide needed assistance, but it isn’t the right program for every small business. Some businesses and especially self-employed individuals have a lot of non-payroll expenses and therefore don’t show a lot of income. This can limit what they would qualify for through the PPP. A second program available is the SBA Economic Injury Disaster Loan (EIDL). EIDL can provide up to a $10,000 advance that doesn’t need to be repaid. The rest of the loan has a low interest rate of 3.75%, for up to 30 years, and a year deferment to begin making payments. An individual applies through the SBA directly on-line.

There are some operational challenges with the EIDL. As of Friday, there were a total of $383 billion in requests for this loan, only 4% of loan applications had been approved, and the stimulus only increased funding by $17 billion. There were also reports that the maximum amount of loans approved so far have only been up to $25,000. The federal government is working to improve this, but right now there are some issues.

A third change to support workers during this time through the federal stimulus is Pandemic Unemployment Insurance. This program gives unemployment benefits to people who don’t qualify for regular unemployment, such as self-employed workers, independent contractors, and gig workers. This may be an option for a few self-employed individuals. Guidance from the federal government to state governments on how to implement pandemic unemployment insurance was just issued on April 5 and most states are still figuring out how to implement. In Nebraska, there is one application and then the state will determine if an individual qualifies for regular or pandemic unemployment insurance.

There are other federal stimulus programs for small businesses affected, especially in tax provisions. There is an employee retention credit and a delay of payment of employer payroll taxes. Each of these programs have specific steps you need to follow to make sure you do it correctly.

Small businesses are dealing with complex problems. There isn’t a simple three step process to figure out what programs are right or wrong as each business is different. It is important you get professional advice to help you figure out your best resources. I’ve been impressed with our bankers and accountants as they have stepped up to figure these programs out and how they can help you. For small businesses to be successful the owner needs a team of experts to help. This includes people that understand money. This isn’t just true during a crisis, but all the time. If you are a small business still figuring out the right program for you, don’t hesitate to reach out to your banker and accountant for assistance.

One more item I want to mention is there have been reports the first stimulus checks are being direct deposited this week. This can make a big impact for people and businesses impacted by the pandemic. If you are receiving a stimulus deposit, make sure you take care of your essentials first and save to make sure you can take care of your May essentials. Many times, in college, on student loan refund day, students would get a check to help cover living expenses for the rest of the semester and spend all the money in one afternoon on an improved home entertainment center or spring break trip. Don’t go crazy with your stimulus check.

After you make sure your essentials are covered, pay attention to where you spend your money. If most of your stimulus check goes to Amazon, it doesn’t benefit our local community. Almost all small businesses are affected by this and our local businesses could use your support. Eat out one more time than usual or buy products locally that you usually get on-line. There’s a local program being developed that will help you get a bonus on money you spend locally. Program details are still being finalized, but keep an eye out for this and in our community and region, let’s put action behind the phrase, “We’re all in this together.”