The largest economic stimulus program in U.S. history promises to alleviate some of the severe symptoms that many businesses are feeling from the coronavirus pandemic, but it might be a while before they learn if it provides a cure.
Amid widespread layoffs and the shutdown of entire cities and states, President Trump on Friday signed a relief package consisting of federal loans, grants, and tax breaks to help businesses survive, and an expansion of unemployment benefits designed to keep workers from becoming destitute.
For small businesses, including thousands of companies in the specialty food industry, the program offers incentives to retain their employees, while businesses both large and small will see tax breaks and more access to loans that could help them weather the crisis.
The Coronavirus Aid, Relief and Economic Security Act creates a new loan program through the Small Business Administration that could become available within days. Repayment of the loans, up to $10 million per company, would be forgiven and the loans would essentially convert to grants if certain conditions are met.
Called the Paycheck Protection Program, it is backed by $350 billion in federal funds that small businesses can use to cover their payroll and other costs, including rent, mortgage interest and utilities, for eight weeks from the origination of the loan.
The 880-page CARES Act includes several formulas to calculate how much businesses can borrow and how much of the loans can be forgiven based on the actions they take with regard to paying their employees. Companies that reduce their staffing or cut individual salaries by more than 25 percent (for those workers making less than $100,000) may be required to repay at least a portion of the loans.
Small businesses (in general, those with fewer than 500 employees) may be eligible to receive 2.5 times their average 2019 monthly payroll costs, up to $10 million. Of particular interest to hotel and restaurant companies, the bill would treat each location of a chain individually for purposes of eligibility, so that individual franchisees employing fewer than 500 people at a restaurant would qualify for the program.
Many of the personal guarantees and eligibility requirements that normally accompany loan applications have been eliminated or streamlined, so that businesses should be able to receive funds quickly, according to Neil Bradley, chief policy officer at the U.S. Chamber of Commerce. The pool of eligible lenders is also being expanded.
“We are advising businesses to get together those average monthly payroll costs, so you can have them ready when you go to your lender,” Bradley said during a webinar on Friday hosted by Inc. magazine about the CARES Act.
For businesses that have already laid people off or reduced salaries, the loans could be used to restore those salaries and rehire those workers, and the businesses could still be eligible for loan forgiveness.
Bradley said businesses should consult with their tax and financial advisers and make some guestimates about the prospects for their businesses.
“You will have to make some judgments about the future,” he said. “It is going to be a balancing act. When do you expect normal commerce to resume? How many of those employees are you going to need to get back quickly? Is it more important to be able to call them back quickly by keeping them on the payroll today to forego the cost of that?”
Likewise, Peter Cohan, lecturer of strategy at Babson College, told Specialty Food News that all business owners should should plan for three different scenarios that could emerge: the most likely scenario, the most pessimistic, and the most optimistic.
These scenarios should model how long it will take for a business to return to where it was, or at least close to were it was, before the outbreak, he said. For each scenario, Cohan suggested that businesses project their potential revenues for the next few years, as well as variable costs, fixed costs, cash flows, and investments.
Relief for Larger Companies
For companies with more than 500 employees, the CARES Act also includes more than $454 billion in loan programs and loan guarantees, which can be disbursed by the U.S. Treasury and would carry interest rates of no more than 2 percent. Businesses would be required to use the money to keep 90 percent of their workers on the payroll through September, in addition to rehiring any workers laid off since February.
The act also includes a variety of tax benefits that could help businesses improve their liquidity. Among the most notable, employers will be able to delay paying 50 percent of their payroll taxes this year and next year.
Of particular interest to many specialty food retailers may be the correction of wording that had been included in the Tax Cuts and Jobs Act of 2017. The glitch in the drafting of that law unintentionally penalized certain business investments by excluding them from being eligible for 100 percent bonus depreciation, according to the National Grocers Association.
“As independent grocers are stepping up to the frontlines to serve their communities during the current public health crisis, NGA appreciates the bipartisan work done by Congress to resolve the retail glitch and provide the needed certainty to allow for grocers to reinvest in their stores and drive economic growth in their local communities,” said Greg Ferrara, president and CEO of NGA.
Tips for Survival
For many specialty food companies, planning for the future requires some guesswork about the ongoing impact of the virus on society, the economy, and consumer spending. The CARES Act includes direct payments to most Americans and an expansion of unemployment benefits, but it’s unclear how those funds will be spent and how much the economy will recover in the short and long term.
Cohan of Babson College offered some advice for struggling businesses in light of the CARES Act:
• Businesses that have already reduced staff should look for other ways to lower their fixed costs, such as negotiating delays in payment of rent, utilities, and loans. “It may also make sense to explore whether the business can relocate to a place with lower rent,” he says.
• Evaluate the staff with a focus on retaining those top performing individuals who will be needed when operations resume. Consider offering them equity to incentivize them to remain with the company, Cohan suggested.
• Consider laying off staff who were not performing up to standards before the crisis.
• Contact customers and let them know you want to help them during this time, and that you plan to resume operations as soon as you can. “It is much less expensive to retain a longtime customer than it is to find new ones,” Cohan said.
• Show your investors a plan that outlines how your company will eventually survive and prosper. “If you can offer them a sufficiently compelling vision of your future, they may be interested in investing more,” he said.
from Specialty Food News https://ift.tt/3bs67Gq
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