NEW YORK, United States — After Pauline Montupet shuttered her boutique in San Francisco’s Mission District earlier this month as the coronavirus epidemic tore through the nation, she knew she would need outside cash to weather the storm. Soon afterward, she began applying for loans and grants to keep her business afloat, including one from the city government of San Francisco and another from Facebook for advertising credits.
So far, she hasn't heard back. Her store, Le Point, is losing about 80 percent of sales, with e-commerce its only current stream of revenue.
Now, Montupet, like thousands of other small business owners across the US, is hoping that a $2 trillion stimulus package will provide some relief.
After striking a deal with the White House earlier this week, Congress is slated to pass the economic relief bill — the biggest of its kind in history — that will provide cash assistance to millions of individual Americans as well as entrepreneurs across the country paralysed by the ongoing coronavirus pandemic — including fashion retailers and vendors.
Under the bill, the Coronavirus Aid, Relief, and Economic Security (CARES) Act is expected to deliver about $349 billion of loans and grants to the Small Business Administration, for which thousands of brands and businesses in the fashion industry would qualify. An additional $500 billion will be set aside for larger corporations.
These short-term loans are designed to help companies like Le Point to cover payroll, rent, utilities and any debt payment due during this time of uncertainty. Any business with 500 or fewer employees is eligible. The maximum loan amount is $10 million, and interest rates are capped at 4 percent. Businesses are required to repay these loans after a year, but some portions will be completely forgiven, depending on how companies use the cash.
Currently, companies can apply for an SBA loan online. After the stimulus bill is signed into law, the application process will likely be more streamlined and convenient, according to Jeff Trexler, associate director of the Fashion Law Institute at Fordham University. Lenders, including banks and credit unions, will be able to initiate the process and simply wait for SBA approval.
Businesses need to remember that this is a loan, not a grant.
But before taking on a loan, he said, it’s imperative to conduct a risk analysis in order to understand whether it’s feasible to pay it back months from now.
“Businesses need to remember that this is a loan, not a grant,” Trexler said. “They’ll have to think about whether it’s worth it because even though there might be a level of loan forgiveness, they’ll need to pay it back in a year.”
That said, Trexler added, companies ought to confer with their lawyers and accountants immediately to understand how much relief they are eligible for after the bill passes. The House of Representatives is expected to vote on it by the end of the week.
“There will be a backlog on this at the SBA, so I would start thinking about it now,” Trexler said.
The CARES Act is also likely to include net operating loss carrybacks or a tax policy that allows businesses to get a refund on their income tax if they posted losses in recent years.
Companies ought to confer with their lawyers and accountants immediately to begin to understand how much relief they are eligible for after the bill passes.
The stimulus package is expected to provide individuals with cash as well. The Senate version of the bill states that American adult would receive $1,200 and children $500. But there is a cut-off income for qualification; single people earning $99,000 or higher, for instance, would not receive a check.
For Montupet in San Francisco, a SBA loan under the stimulus package that covers just payroll and rent may not be enough.
“A lot of my costs are tied up in inventory,” she said. “It’s this fine line of keeping the business up and running but also [managing] money to my vendors, who are small businesses as well.”
According to financial experts, other options for accessing cash include negotiations with lenders to defer amortisation and interest payments, as well as leveraging assets like real estate as collateral for new loans. Montupet has reached out to her landlords about possibly paying rent in later quarters.
“I’m talking to my accountant and we’ll apply for whatever we qualify for,” Montupet said. “We just have to take it one day at a time.”
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