The Mother of all Disasters is Upon Us!

Today is March 21, 2020, and the pandemic has rewritten the rules of everyday life for virtually every person on planet earth. Like a cosmic light switch being flipped to the “off” position, both individuals and businesses have seen their normal flow of income suddenly stop. Nobody, including the biggest Fortune 500 companies, can survive indefinitely with zero income coming in. So instead of panicking, let’s review some strategies and helpful tips to stop (or at least slow down some of the bleeding) when it comes to expenses that continue to haunt you in your dreams. As a general rule, expenses have not gone away just because your income has been reduced to a trickle. Specifically, I will be addressing debt repayment as it can be one of the largest fixed expenses both individually and for business owners. We can break this down further into categories based on how the pandemic has affected you personally: Relatively Strong Financially with Modest Impact There are some businesses that have been decimated by this virus. Airlines, cruise ships, restaurants, hotels, live music venues to name a few. There are a select few businesses that have seen demand skyrocket (manufacturers of toilet paper and ventilators) who can operate 24/7/365 and still not meet all the overnight demand. And then there are most businesses somewhere in between. If your business is in good shape and you have cash reserves to ride out the disruption for a period of six months or more, now is the time to ask for a rate modification on your existing loans. With the Prime lending rate falling to 3.25% (which was the bottom rate offered during the last major financial crisis in 2008), most healthy businesses should take advantage of these lower rates to reduce and stretch out their monthly loan payments over a longer period of time. The rate the Federal Reserve is charging banks (Fed funds rate) has been pushed to zero which means banks can access capital at virtually no cost and lend it to their good customers to help them get through this crisis. If your bank will not accommodate your request to modify your interest rate, it is time to pound sand and shop around to find another local lender who will. Not Very Strong Financially with Major Impact If your business has been sucker punched financially and you are reeling from the shock, now is the time to be proactive and reach out to your lender(s) and ask for relief in the form of either an interest only repayment period or something called “Forbearance” which is a period of time (3 to 6 months) where the lender agrees to work with you and not require any principal OR interest payments during this period of time. However, those missed payments are generally added back to your loan balance, so you are just postponing the pain for a later date, so this only keeps your business on life support. It may not provide you with enough time to heal the underlying problem of no income for a longer period of time. The bank is not going to allow this non-payment to go on for very long. Right now, one of the lifelines that Washington DC is making available to everyone that has been thrown overboard is a Disaster Relief Loan directly from the Federal Government. If your business has been impacted severely by this pandemic, and at this point it would be hard to find one that has not been damaged, then listen up! Normally, Small Business Administration (SBA) loans have strict eligibility guidelines which excludes many businesses in normal times. These are not normal times. So, for the first time I can remember, the SBA is making direct loans to REAL ESTATE INVESTORS. This is huge! If your tenants cannot pay their rent due to their job loss and you still have a loan on your investment properties, this SBA loan can be a godsend. It will even work if you run short term rentals with Airbnb. These disaster relief loan funds can be used to pay fixed debts (like your monthly bank loan payments), payroll, accounts payable, and other bills that could have been paid had the disaster not occurred. The loans are NOT intended to replace lost sales/profits or for expansion. Eligible businesses may qualify for loans up to $2 million with a rate of 3.75% and terms for long as 30 years for repayment! There is even the ability to get a $25,000 unsecured loan from the SBA. However, to get a loan above $25,000 you will need to have collateral and the best collateral available to secure these larger loans is equity in real estate (either your personal home equity or equity in a commercial building or rental properties). Even though you might think this is too good to be true, the fact of the matter is you have time to apply if your business has shut down (think about restaurants and dentist offices, for example) and it costs nothing to see how much of a loan you can receive from this unprecedented program. Be forewarned, though…..it is a bugger of an application to fill out so have plenty of Tylenol for the headaches this will inevitably cause as your head will want to explode. First, the governor of your State needs to declare your State a disaster area due to the Corona virus in order to be eligible for the disaster relief loan program from the SBA. Then you need to apply online at: DisasterLoan.SBA.gov Weak Financially with Severe Impact Let’s face the facts. If roughly 50% of folks cannot scratch together $400 for an emergency, and this definitely qualifies as a four alarm, Katy-Bar-The-Door emergency, then none of these strategies are going to miraculously resurrect a business, or your personal finances, from a death bed. Unsecured debt will be defaulted on in massive quantities the longer this goes on. Secured debt will not be far behind. Do not plug your ears, close your eyes, and wail hoping that this will just go away when you open your eyes some distance down the road. Your name is not Dorothy and there are no ruby red slippers to whisk you back to the way things were. As the saying goes, “we are not in Kansas anymore.” If you don’t have reserves and your income has dried up, then you are in survival mode so let your lenders know the truth sooner rather than later when this problem can get much uglier. The quicker you can rip the band aid off, the quicker you will heal from this devastating blow to your financial wellbeing. Stay safe out there, people and, as the saying goes: This Too Shall Pass.