Across the country, community groups, philanthropists and companies that serve the small business market are pulling together to launch emergency loan funds and other initiatives to get money into the accounts of small businesses strangling in the shutdown.
The timeline for federal aid, which includes disaster relief grants and loans, and a new $349 billion Paycheck Protection loan program based on the size of a small business’s payroll, remains uncertain. Though applications are beginning, it’s not clear how fast the money will flow and could be weeks, said experts. JP Morgan Chase Institute research shows that 50 percent of small businesses have less than 15 cash buffer days. More than 6.6 million people filed for unemployment last week.
“It’s these small business that are the vertebrae of the backbone,” said Brook Smith, a Kentucky-based entrepreneur and philanthropist, by text. “They are the ones we speak of, relish, but unfortunately the ones we unintentionally forget in moments like these – though there’s never been a moment like this.”
“They are what makes everything about our communities unique — business with 10 employees and less. Hell, yes. They don’t have the time/bandwidth to make it until the bureaucracy figures which end is up.”
Smith donated to a loan fund that launched this week in Louisville, Ky. It was organized by a community development financial institution, LHOME, a local impact fund called Render Capital, the economic development agency, and the Chamber of Commerce.
With $900,000 to start, the fund aims to provide 12-month 0% interest loans up to $25,000 to small businesses with fewer than 10 people located in Jefferson County, Ky. The loans are renewable for five years at low interest rates. Community volunteers are doing some of the loan servicing
“The goal is to (to have the money land) within a week from the time of an application,” said Bryce Butler, an impact investor who championed the fund. In less than 24 hours, the fund has already received 100 inquiries, he said. Organizers are anticipated a high default rate, he acknowledged. Some of the capital was donated, or came in the form of grants; some came from other local loan programs and will have to be repaid, albeit possibly with a loss.
Other initiatives have included a fund launched by the state of Iowa (applications are now closed) and a $1.5 million fund launched by the City of Atlanta. The city of Tulsa, Okla., launched a 0% interest loan program that makes up to $50,000 available for small businesses.
It’s hard to tell whether the local lending programs will make a difference. But some best practices are emerging, including technology that ensures privacy as documents are transmitted (in Louisville, that’s coming from a local tech company, Lenderfit), and the presence of established players, like Chambers of Commerce, that already have good communication networks into small business communities. Employer firms with fewer than 100 workers employed 33.4 percent of the nation’s workers in 2016, but they are difficult to reach with information about how to apply for aid.
Meanwhile, the simplest mechanism to get money into the bank accounts of small businesses is for well-capitalized big businesses to speed up their normal pay schedules. Many large businesses typically take 30-120 days to pay their vendors and contractors.
Yesterday, a coalition of tech companies that serve the small business market, Alignable, Fundbox, Gusto, Homebase, Womply, SmallBizDaily.com, Actual.Agency, Business.com and Small Business Edge, introduced an initiative called #paytoday to urge big businesses to pay faster.
Alignable, a small business referral network with 4.5 million members, surveyed them in the past few weeks, finding:
• 37% of 17,500 who responded say they have less than one month’s savings to keep them afloat.
• 57% of the 12,200 businesses who responded say they need more than the CARES act to sustain them. Either they’ll require more money than the government will provide (23%), or will need it earlier than it’s likely to arrive (34%).
• 65% of 8,300 respondents say they’re not sure where else to turn for extra funding to stay in business.
One of the biggest issues around the federal aid programs is confusion about where and how to apply, which will likely slow the process of getting the money where it needs to go. (More about the four kinds of benefits available for small businesses and micro entrepreneurs.)
The SBA disaster loan application – which the agency said can result in payments as fast as three days from a completed application – is live and takes only about 10 minutes to complete. But it’s not clear whether it is integrated with the Treasury Department, which would actually process payments.
Businesses apply for the new loan program (loans are up to $10 million) through small business lenders, according to a press release the agency sent out yesterday. That fact that it is being run through lenders suggests that the process will take at least a few weeks.
The SBA press office call line was not working to respond to questions about how soon the funding could flow.
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