Small Businesses Continue To Suffer Pandemic Pain. Is Bankruptcy The Answer? – Forbes

The coronavirus pandemic has been brutal to small businesses. Nearly 79% of small businesses have felt a moderate-to-large negative effect from the pandemic, according to an August 2020 U.S. Census Bureau Small Business Pulse Survey.

I never would have imagined myself in this position, says Nicole Rosen, founder of Mizfit Inc., a company that provides after-school and summer dance classes to schools across South Florida. Rosens company successfully applied for a Paycheck Protection Program (PPP) loan to help maintain payroll and operations, but without the same level of demand or ability to hold in-person classes, she still had to let several employees go and dip into savings to stay open.

Im pivoting and doing whatever I can to survive, Rosen says.

Although the PPP was touted by U.S. Treasury Secretary Steven Mnuchin as a huge success, with government data indicating the forgivable loan program supported more than 51 million jobs, the sustained economic downturn and its resulting effect on small businesses has stretched far beyond anyones expectations, leaving many businesses wondering what else they can do to survive.

While Republicans have touted reopening the economy as a way to save small businesses, it may not be the panacea that business owners hope for.

In New York, for example, restaurants will be able to host indoor dining at 25% capacity starting on Sept. 30. But many restaurateurs fear that the revenue generated by this reduced capacity wont be enough to save their businesses, nor hire back all of their employees.

In an interview with the New York Times, Eric Ripert, chef at Le Bernardin, said, I know I can make it work at 50 percent, but the expenses of getting it up and running, versus the revenue, my gut tells me it will not work at 25 percent.

Some business owners have pinned their survival hopes on another round of PPP. But the Senate failed to pass its latest stimulus bill, and with lawmakers stuck in a months long stalemate, there may be no relief before the end of 2020.

As the funds from CARES Act programs like the PPP and the Small Business Associations (SBA) Economic Injury Disaster Loan (EIDL) Advance grant are depleted, small business owners are left wondering if they can survive untilor even ifadditional government aid arrives.

The [CARES Act] kind of cushioned the immediate impact but didnt fix anything long term. says Ike Shulman, co-founder of the National Association of Consumer Bankruptcy Attorneys (NACBA). There are going to be people filing for bankruptcy that never had a clue theyd need a bankruptcy lawyer.

When a business has already exhausted its PPP loan but sales havent rebounded, whats the next move?

Small business owners waiting on negotiations about future aid may consider turning to other avenues, although each comes with its own potential pitfalls.

Fast cash options, which are lines of credit issued to a small business and often backed by a personal guarantee, have proliferated over the past few months. And although it may seem appealing to get money quickly to tide you over, these types of loans often come with sky-high interest, says Leslie Tanye, a lawyer and founder of debt solutions law firm Tayne Law Group, P.C. in Melville, New York.

In todays environment alternative funding is limited, loans are more restricted, Tayne says. It becomes a Catch-22 for a business owner: What do you do to get money and how do you keep your business up?

Although there are low-cost small business loan programs available, including the SBAs EIDL program, the Federal Reserves Main Street Lending Program (MSLP) and Community Development Financial Institutions (CDFI loans), the thought of owing money can be unappealing without a clear path on how to repay it.

I dont owe anybody any money, I dont want to owe anybody any money, says Joey Ball, who owns several franchises in the greater Los Angeles metropolitan area. Its going to be a hard decision to think that youre either going to have to borrow money to stay afloat or to just file bankruptcy and wait for this to blow over and start again.

Ball says he received PPP funding, but the money he received for all seven of his businessesincluding five massage and skin care salons, one waxing salon and one tanning salonhas now been spent. His businesses are closed, and he anticipates at least two of them will never reopen.

Ball also says many of his employees have moved on to other jobs now that the federal $600 unemployment benefit has ended, making it near-impossible to reopen even if he could.

The only thing at this point thats going to save me is a second round of PPP, Ball says. Basically the government is controlling my destiny.

Closing your doors permanently may not be your only option.

The natural inclination is people dont want to file [for bankruptcy], theyll do whatever they can to stay afloat; but if the mountain of debt that they are facing is so large that they know its a real possibility, then the earlier they the get organized the better, Shulman says.

Another option may be debt negotiation.

Renegotiating your debts with an experienced financial attorney, especially if you have assets, allows more flexibility than in bankruptcy, Tayne says. Obviously bankruptcy is an option but its complicated and expensive. Often small business owners have mixed personal funds with business funds. And, when someones personal monies are enmeshed with their business funds, it can make it exceedingly difficult to tell which is which, a requirement for a bankruptcy proceeding.

Tayne recommends taking stock of any business assets you can potentially either sell off or use as a negotiating chip with creditors, along with taking a hard look at your cash flow to see if your business is sustainable in the current economic environment.

Renegotiating debt can also have less of an impact on your business and personal credit. It depends on the type of business you have, but a business bankruptcy can stay on your personal credit report for seven to 10 years, and on your business credit reports for up to 25 years.

There are generally two types of business bankruptcy options:

Theres a provision of Chapter 11 that may make it more palatable to smaller business owners trying to buy time until the economy bounces back. Within the Small Business Reorganization Act of 2019 (SBRA), theres an option that allows business to spread administrative fees out over three to five years versus the traditional upfront payment of administrative costs.

Before taking action, consult with an attorney to help determine your next steps. Many bankruptcy or financial attorneys offer free consultations before you have to commit to working with them or taking legal action. Most states have legal aid societies or lawyers who will take cases pro bono or at a drastically reduced cost for those who qualify financially.

Read the original here:

Small Businesses Continue To Suffer Pandemic Pain. Is Bankruptcy The Answer? - Forbes