Coronavirus is having a significant impact on many small businesses already and no one knows how long or how hard the economy will be affected. If you are having trouble paying your bills due to a slowdown in revenues or higher than usual expenses related to COVID-19, here are 9 options to consider if your business can’t pay its bills due to coronavirus:
1. Look into short-term financing.
If you are anticipating a short-term impact on cash flow, find out whether your business is able to access any of the following forms of financing:
- SBA loans including funds expected to become available through the SBA Disaster Loan Assistance program
- Low-rate credit card offers, including balance transfers
- Lines of credit or term loans
Financing is generally best leveraged when you have a clear plan for how it will help you make money. But these are unusual times and some businesses will find it helps to use financing to keep operations going during a crisis.
If your business has loyal customers, consider asking them for help. Let’s say, for example, you have a popular restaurant in an area where people are not traveling or going out to eat. Your fans may be happy to support you by buying a coupon for a meal in the future or even donating a meal to someone in need. You won’t know if you don’t ask.
3. Negotiate with your suppliers and vendors.
Your suppliers and vendors are well aware of what is going on and may be able to work with you to negotiate lower payments or longer payment terms for a period of time. It helps to have good business credit, but in times like these, lenders will often make exceptions. They will want to keep your business in the long run, and may be flexible about deferring or accepting reduced payments.
4. Make lower credit card payments.
While it’s good financial advice to pay credit cards off in full to avoid interest, there are times when making minimum payments can help your business get through a time of tight cash flow, and this may be one of them. If you go this route, make sure you understand the interest rate you’ll be charged, and be very careful to use those credit cards only for essential business expenses. Also, understand that high balances on credit cards that report to the owner’s personal credit may lower your credit scores.
It’s also important to note that if you don’t make your minimum payment on your credit card, you will be charged a late fee and interest. And if you have a business credit card, your interest rate may immediately go up to the default rate on your outstanding balance. (On a consumer credit card, you generally must be more than 60 days late before your rate can increase.) If you can’t make your minimum payments, check out the advice below.
5. Talk to your lenders.
Your lenders don’t want your business to default on payments. If your business can’t pay its bills due to coronavirus, they may be able to work with you to restructure your debt temporarily. If you’re facing the prospect of not being able to make payments, reach out to them sooner rather than later.
If you have certain SBA loans, the following relief may be available:
- SBA 7(a) loans: lenders may defer payments for 90 days or up to six months (depending on whether the loan has been sold on the secondary market).
- SBA 504 loans: lenders may defer up to six cumulative monthly payments or 20% of the original loan amount, whichever is less.
- SBA Microloans: microloan intermediaries may make deferments for up to six months but deferment may not cause the life of the microloan to extend beyond the maximum six year maturity.
6. Call your landlord.
If you are having trouble paying rent for your business location, don’t ignore your landlord. Explain what’s going on and ask to make smaller payments. Some will be able to be more flexible than others, but it’s unlikely they will be able to easily rent that space, so there’s a good chance they will work with you to avoid having it sit empty.
7. Consult a credit counseling agency.
Non-profit credit counseling agencies, such as those who are members of the National Foundation for Credit Counseling, can help you evaluate your situation and options for paying back your debt. You may be able eligible for reduced payments on some of your credit cards (personal credit cards only.) Visit NFCC.org or call 1-800-388-2227 for a free consultation.
8. Consider debt settlement options.
When you fall behind on payments, your debts are often sent to collections. At that point, you may be able to negotiate lower payoffs to resolve the debt. This option is not without drawbacks — including late fees and interest, or even potential lawsuits from creditors — but it does work for some individuals and small business owners who can’t pay their full debts but for whom bankruptcy is not a good option.
9. File bankruptcy.
Small business owners may find bankruptcy an option for restructuring debt or winding down a business with bills that can’t be paid back. Some types of bankruptcy (Chapter 11 or Chapter 13) may allow the business to continue to operate while making smaller payments. Chapter 7 can help a business close and avoid protracted legal battles over unpaid debts. Consulting with a bankruptcy attorney doesn’t mean you have to file, and it may provide you with answers to important questions keeping you up at night.
If your business can’t pay its bills due to coronavirus, explore your options sooner rather than later. If you wait too long to get advice, you may make expensive mistakes that could have been avoided. While we all hope that this situation remedies itself before it has significant impact on the small business community, it never hurts to take precautions to protect your business.