The global pandemic brought the world’s economies to a standstill and put their main driving force, small businesses, temporarily on the parking lot. Large international companies generally had the cash on hand to cushion the impact of the crisis. In contrast, small businesses had almost no resources to cope with the challenges of business financing. This especially affected the retail, hospitality, accommodation, and entertainment sectors.
For this reason, the SBA launched several programs to provide financial support to small ventures. In this article, we review these programs, highlight the best business financing solutions, and advise on what to spend money on to boost your growth.
The damage done by COVID-19
The COVID pandemic has turned all our lives upside down and caused great damage in almost all sectors and markets. The problem is extremely complex and affects the entire economic ecosystem. If we look at it from a small business perspective, the biggest challenge is the overall decline in demand. Consumers are buying fewer goods and services. Stores were forced to close. We also had less need for entertainment and less opportunity to go out or travel. Goods and services that used to be part of our everyday lives suddenly seem superfluous. And this phenomenon has hit the US economy hard.
- Over 8% of unemployment
- A high number of small businesses went bankrupt or became financially unstable
- The global supply chain has slowed down so much that some products have become completely scarce.
While these issues are still not resolved and continue to cause serious problems in many industries today, the US economy is now making great strides toward recovery.
Labor market challenges
Almost immediately after the shutdowns were ordered, it became clear that US businesses and their employees were in deep trouble. The situation left many SMEs with almost no revenue. Managers laid off a significant number of their workers almost immediately, and the crisis was accompanied by a record wave of layoffs. There was a week when 7 million unemployed people claimed public assistance. In June 2020, US unemployment had even surpassed the level of the 2008-2009 crisis, rising from 3.7% to 14.5%.
US policymakers responded quickly, launching a series of programs that helped weather the difficult times. In addition to the $1,200 cash assistance (for individuals), one of the most important projects was the Paycheck Protection Program (PPP). During its lifetime, many small businesses were able to obtain additional funding, but the program received mixed reviews.
However, PPP loans are not available and the program was shut down in late May. Instead, the federal government launched two market-specific business financing programs. One specifically for the hospitality industry and the other for entertainment venues and theaters.
A broad-based reopening of businesses, growing resilience, and massive government support in the spring have contributed to a rapid increase in consumer spending, the main driver of the economy.
Instead, experts predict the economy to grow steadily next year thanks to job creation, accumulated savings, and continued fiscal support. In the longer term, however, gross domestic product (GDP) growth will gradually slow to a more stable pace following the virus epidemic. The US economy is expected to grow 5.6 percent in 2021, which would be the strongest level since 7.2 percent in 1984. Goldman Sachs predicts the GDP growth slowing down to 4% next year.
Small Business Financing Opportunities
Mixed feelings about the PPP program
According to the US Small Business Administration, the Paycheck Protection Program offered business financing aid for more than 11 million ventures (loan accounts), which totaled around $792 billion. In terms of the numbers, the program was certainly a major step in stimulating the economy, but in hindsight, it did not necessarily help those who really needed the financial aid.
The slow PPP process has resulted in nearly a quarter of applicants still waiting for payment in November. On the other hand, sloppy checks resulted in many non-eligible companies receiving funds too.
The new SBA programs
Shuttered Venue Operators Grant
Small venues can apply for over $16 billion in grants through SBA’s Office of Disaster Assistance’s Shuttered Venue Operators Grant (SVOG) program. A single grant award may be no more than $10 million. The maximum amount may equal up to 45% of the applicant’s gross earnings.
The program is specifically designed to help businesses that have had to close altogether during the most difficult months of the pandemic. The money collected can be used to maintain jobs and operations. In comparison to PPP, this is not a loan but a non-repayable aid.
The range of eligible businesses include:
- Operators and promoters of live venues
- Venues for live performances (including circus)
Restaurant Revitalization Fund
Although many restaurants have switched to home delivery, there were smaller establishments for which this was not a viable option. Under the scheme, restaurants can apply for a grant of up to $10 million. It can also be used for staff retention and operational purposes.
Are these programs the ideal solution for your business?
The above programs, as well as the PPP, served good purposes but were characterized by slow and misdirected disbursements. Many businesses have had to raise additional capital from alternative sources to survive the closures. Now that the funds have been exhausted and no new applications can be submitted, it is worth looking for alternatives.
Merchant Cash Advance
Why MCA’s are a great alternative for business financing?
A Merchant Cash Advance is an instant way to fund your small business. The principle of operation is simple: After a short assessment process, the lender provides you with the requested amount without any collateral. You can then repay the loan in daily, weekly, or monthly installments from your income.
Merchant Cash Advances are an excellent complimentary financial vehicle to government programs, but now that the programs are coming to an end, it is also a fully-fledged alternative.
What are the advantages of a Merchant Cash Advance?
- A quick solution: The Paycheck Protection Program and other similar business financing solutions typically take a long time to get to the stage where businesses see money from them. In contrast, Merchant Cash Advances can be applied for online and funded in as little as a few hours.
- Low administrative burden: Government programs require an incredible amount of paperwork, but MCA’s do not.
- Collateral: You do not need to present collateral to apply for MCA’s, as your future receivables will provide the collateral for the funding.
- Spend flexibility: The biggest advantage of an MCA is it’s flexibility. You can utilize it for more than just maintaining your labor or paying taxes. You decide what you invest the loan amount for.
What is a Merchant Cash Advance for?
For what purpose can you take out a Merchant Cash Advance loan?
Countless businesses have gone bankrupt over the past year and a half, and almost all small businesses are facing financial difficulties. If your business is in a similar situation, Merchant Cash Advance can help you with a well-thought-out business financing plan.
When you choose this type of loan, you stay in control. Let’s look at what you should spend on if you want your business to keep growing:
- Hiring: You can spend a MCA not only on the payments of the existing staff but also on recruitment. Find new talent to help with sales, marketing, or operations to see your business outperform the competition.
- Software and hardware: The recovery period is the best time to make investments that you’ve been planning, but haven’t yet had the opportunity to make. Purchasing new software or hardware can give you a competitive edge in the marketplace that will pay off later. It could be a new production machine, an upgrade to your IT system, or the purchase of a new customer relationship management program.
- Renovations: You may not have thought about it yet, but renovations can have a very positive impact on your business. Whether you run a salon, restaurant, or office, renovations can change the environment, making customers more likely to return. With Merchant Cash Advances of up to $5,000,000 you can transform your entire work environment.
Small Business Financing from Merchant Funding Solutions
These are only a few ideas on how you can use Merchant Cash Advances. The team at Merchant Funding Solutions is happy to help you navigate the world of MCA’s to find the right solution. Contact us today so we can help your business grow!