Why I’m worried about SBA Loans

If you are considering an SBA loan, consider this:

Business owners may get a loan and then realize they’ve “student loaned” themselves — by that I mean they will have thought they were signing up for something that was going to help them push through the pandemic but ultimately prevents future growth due to debt.  While forgiveness is a possibility, the rules to date are extremely murky, as stated in this New York Times article.

I do not recommend either the PPP or EIDL loan to my clients unless they were not only cashflow positive pre-pandemic, but were at minimum 2x profitable above expenses.  Put another way, if you did not have the extra cashflow to pay off a loan BEFORE the pandemic, it’s unlikely you will have the funds in time as lockdowns ease and businesses begin to open again.

Is choosing layoffs over the PPP or EIDL loan a heartless thing to do to your employees?  No.  The unemployment program across America has been expanded and extended, covering many more people and paying out greater dividends.  Both you and your employees paid into the program — it is a valid way for your employees to receive income while laid off while you keep the business alive so they have a job to return to when the pandemic eases.  This awesome article by the Harvard Business Review has great tips for laying off with compassion and communication — especially remote.

No one knows for sure how long this will go on.  Will we be able to return to life as ‘normal’ without a vaccine?  What will life look like in the meantime?  I suggest conservative financial planning at this time, while supporting your employees to the best of your ability so everyone comes out of this with opportunity.