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COVID-19 Pandemic and Getting Through It: Resources and Ideas for Startups Seeking SBA Loans

Venture-backed startups are used to running at a fast pace as they seek out growth opportunities and work toward making a foothold in the marketplace. But in the midst of the COVID-19 pandemic, the pace is more frantic than normal—and full of uncertainty.

Some startups are experiencing sudden drops in revenue, making tough calls about employees, and putting the brakes on growth plans, while having to adjust to their teams working from home. While the new $2.2 trillion stimulus law offers some hope to companies needing immediate financial assistance, some startups are worried they could be shut out if changes aren’t enacted soon.

Startups’ Unique Challenges

With all the news about how to take care of family (which is the utmost importance right now), there’s also been a lot of information floating around about how businesses can keep running as they deal with cash flow issues, without a clear view of when this will all end. Another worry is whether venture capital firms will institute changes as they look more closely at their own holdings. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, offers some temporary relief to companies and employees who may be facing financial hardship. This includes hundreds of billions worth of loans and loan guarantees for businesses, along with tax benefits. Of particular interest are current, low-interest, government-backed lending opportunities:

  • Paycheck Protection Program: Companies in business since before mid-February, with fewer than 500 employees, may qualify for funding to cover their payroll costs through the end of June. It’s designed to reward companies that maintain their payroll headcount throughout the crisis by providing a loan of up to $10 million or 250% of the average monthly payroll expenses of the prior year, whichever is less.
  • Economic Injury Disaster Loans: The new law expands this Small Business Administration (SBA) program for companies needing access to working capital. The exact amount you can borrow (up to $2 million, if you put up collateral, or $25,000) depends on how the company has been affected. While the interest rate is low (3.75%), owners are expected to provide personal guarantees.
  • SBA disaster loans: This program put $7 billion up for grabs before the CARES Act passed, and companies were eligible to submit their applications once their states were declared disaster areas.

Under current SBA rules, however, VC-funded startups may not qualify as “small businesses,” making them ineligible for the CARES Act loans unless a change is made. House Majority Leader Nancy Pelosi and California Rep. Ro Khanna, among others, have called on the Trump administration to make changes that would include startups.

What Can Startups Do Now?

In addition to taking advantage of funding opportunities, companies need to act fast to slow any cash burn, keep costs down and, best as they can, plan for the future.

  • Reevaluate plans: Many startups have already scrambled to redo their forecasts and budgets to identify where they can cut costs. It’s important to get insights from the management team, in particular the CFO. This level of expertise can bring a much-needed strategic view toward the company’s future and what can be done today to strengthen it.
  • Prioritize flexibility: Whether the company is recovering from recent layoffs or key team members missing due to illness or child care issues, your staffing needs may be in serious flux. This pandemic has taught us all to be flexible. Bring in missing layers of talent when you need it—and only when you need it—to get you through these tough times while also making sure all the day-to-day work gets done..
  • Become even more customer-centric: Companies are finding innovative ways to meet the new, evolving expectations of their customers. Those are the companies that are continuing to build up their brand and reputation, even if significant deals are not possible at the moment. This could be an opportune time to introduce a new service or solution that meets your customers’ unique yet temporary needs.

Streamlining the Current Chaos

We are in this together, you feel the impact everywhere—the Bay Area, nationally and globally. Personal life and corporate life are chaotic for everyone. Fortunately, there are resources for understanding what actions your company can take and where you can turn for potential funding to keep afloat and thrive. The finance pros at RoseRyan have designed an SBA Loan Toolkit/Resource Guide to quickly and efficiently address the unique needs of VC-funded startups. Wondering whether your company can qualify for a particular loan and overwhelmed by all the terms and thresholds? We can streamline the process and make sense of it all.

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Tracey Hashiguchi heads up RoseRyan’s Emerging Growth Solutions area, which focuses on delivering all areas of finance and accounting that VC-funded companies need to go further, faster. This practice area delivers both the strategic and operational finance expertise that growing companies need through its dedicated team of savvy consultants. Tracey oversees RoseRyan’s strategy, programs and consulting team for helping startups get to the next stage of growth. Before joining RoseRyan, Tracey worked at Deloitte.