The KU Small Business Development Center (SBDC) is one of 13 Small Business Development Centers in Kansas and one of more than 1,000 SBDCs in the United States. The KU SBDC is a partnership among the U.S. Small Business Administration (SBA), the Kansas Department of Commerce, the KU School of Business and the Lawrence Chamber of Commerce.
The center serves Douglas, Franklin, Jefferson, Atchison, Leavenworth and Doniphan counties in Kansas, providing free one-to-one advising to small business owners, managers and prospective owners. During the COVID-19 pandemic, the center’s staff has been helping its clients and businesses in the region connect to relief programs and has been offering advice and training.
KU SBDC director Will Katz and KU SBDC business advisors Kristina Mease and Taylor LaRue offer some general advice for small business owners about relief programs, cash flow management and the importance of supporting small businesses during the pandemic.
Read about initiatives specific to Kansas and the Lawrence area in a supplemental Q&A on the School of Business blog.
Can you briefly explain the role small businesses play in the Kansas economy?
Katz: Small businesses generally provide between 60 to 65 percent of jobs in Kansas. It varies a little bit by year and generally speaking, provide about 100 percent of the job growth from year to year.
The most important role that I think small businesses play in the Kansas economy is community self-definition. If you think about the businesses that matter to you — when people come and visit you from somewhere else, where do you take them? — most of the businesses that matter to your notion of community self-definition are almost always small businesses.
On the KU SBDC Facebook page a few weeks back, you explained some of the programs designed to provide relief to small businesses, such as the Economic Injury Disaster Loan (EIDL) and the Paycheck Protection Program (PPP). Both of these programs recently have run out of funding. First, can you briefly explain these initiatives and what they involve?
Katz: With the EIDL program, there’s both the advance and the loan, and these are really just two elements of the same program. That program has been in existence for at least 20 years. In my first year at the SBDC, I spent several weeks in Greensburg, Kansas, when the F5 tornado hit, and we were doing EIDL loan technical assistance back then. The businesses would get $10,000 in advance and then whatever EIDL they would qualify for. This round, that’s what the SBA said would happen, but they changed it. Instead of a $10,000 advance, it’s now $1,000 times the number of employees you have up to 10, and then I believe it was a $2 million maximum loan. We’ve had clients show us their invitation to the acceptance portal with a max of $15,000 for the first 60 days. So they throttled it back massively. I think it remains to be seen what will happen because I think they’re going to have to appropriate more for it.
The PPP is an interesting program because there are elements of loan forgiveness built into it. The loan is intended to be used for employee salaries, sick or medical leave, rent, utilities and other working capital needs. It’s been a bit of an uneven rollout for the SBA. With the EIDL, you apply directly to the SBA for that money. With the PPP loan, you’re applying to banks. The SBA just acts as a guarantor. Any time you roll out a brand new program like the PPP, it’s difficult. I think guidance came late, and so the banks struggled to know what to tell clients. It has not been an easy path for the small businesses to navigate.
What businesses qualify to apply for these programs?
Katz: Most businesses will qualify for both of those loans, and our advice has just been, apply for both of them if you can possibly get them, and then see how the money comes in. So, if a business gets an EIDL first and then a PPP second and the PPP is sufficient, they can refile the EIDL into the PPP or they can choose to not take the EIDL loan. These generally don’t have application fees or pre-penalty fees. Honestly, the best advice is: You need money, apply for it every way you can, and then when you get the opportunity to make a decision about which money to take, then you think about that.
Is there any benefit to “waiting it out” versus applying for these programs?
LaRue: No. Faster is better in this situation.
With the recent news about PPP and EIDL funding running out, is there anything that small business owners can be doing between now and when these programs potentially get more funding?
Katz: They can be reaching out to congressional representatives asking for an update on the status of funding, I would say especially for the EIDL.
At this point, are there any additional federal programs that you’d recommend small business owners look into?
Mease: There’s unemployment benefits. There’s something called the Pandemic Unemployment Assistance Program. Basically, that just opened up unemployment benefits to the people who weren’t originally eligible. That includes self-employed individuals, independent contractors — so if there’s no work and you can prove decrease in revenue streams, then you may be eligible for unemployment benefits. The caveat there is that it’s not available right now. They’re currently working on putting those systems in place, and the Kansas Department of Labor is going to do a huge push when it is available.
Katz: That’s a federal program that’s administered through the state. The other thing is that any business that has an outstanding SBA loan of just about any type should be eligible for a deferral of six months on that loan. So the real goal here is one of cash flow management. You want to minimize the cash that is flowing out of the business. You want to make sure that the things that you’re paying for, are really damn important for you to be paying for. And then you want to do everything you can, whatever sources are available to bring in some cash in so that you can pay for the things you need.
Can you dispel any hesitation that small business owners might have when considering applying for these loans (e.g., concerns about repaying the loans down the road, interest rates, etc.)?
Mease: These programs were designed to ease interest rates, so they’re not what you would typically see for an SBA loan. The EIDL loan interest rate is 3.75% for business owners and then 2.75% for nonprofits — so relatively low. The interest rate for PPP is 1%. Maturity is another thing to think about as well when we’re looking at repayment. The EIDL loan has a maturity date of 30 years. So that’s going to reduce the payments quite a bit if someone is looking at debt repayments and what it’s going to look like. That is a long period of time that you have to be mindful of, but you can decide when you want to pay it off and there are no fees or penalties. Maturity for the PPP is two years. Now the thing with the PPP is that a portion of it may be forgivable. They have particular guidelines, and more of those guidelines are still coming.
Katz: The advice that we’ve been trying to give people is, if you get the PPP loan, spend it on things that you have to spend money on. Don’t look at it as free money because it may not be at the end of the day. With as many changes as we’ve seen, I wouldn’t be one to counsel somebody to count on the forgiveness. The calculations on that won’t be made until June 30. We also don’t know really yet when things are going to reopen in any substantial way. Our advice is use that money when you reopen because you’re going to have some serious inefficiencies.
LaRue: What a lot of the banks are saying, and what we’re hearing too, is to keep really meticulous records on the PPP and the EIDL. We heard from an accountant to even go as far as opening two separate bank accounts so you can look at everything going in and out for when that time comes that things may be forgiven.
What does this crisis look like for small businesses as we move forward?
Mease: The NDC did a webinar a couple of weeks ago, and one of the things that they provided that we’ve kind of held on to since then is that they developed a framework to help us categorize different phases that we’re going through:
- Phase 1 is survival and rescue. So where we’re at right now in terms of the small business community.
- From there, phase 2 is stabilization. So when things start to reopen, how do we stabilize even though things aren’t going to go instantly back to normal?
- And then beyond that is phase 3, which is recovery and rebuilding. We have to acclimate to a whole new normal, so what is that going to look like in terms of what our day-to-day looks like, as well as what our funding options will look like.
In what ways can community members support small businesses during the COVID-19 pandemic?
Mease: With so many unknowns, financial scarcity is a very real thing for a lot of people, so being able to support financially may not be an option for some individuals. However there are still ways that you can celebrate local businesses that don’t cost anything. One of those ways is leaving reviews for businesses you really like. I think in our daily lives, we’re so busy that we may love a place but have never gone on to Google or Facebook to post a review. So a review is more than just leaving a nice comment; it’s reminding the business owner who’s dealing with so much stress and uncertainty that they do matter and they have left an impact on you.
LaRue: Also on the online space, sharing or tagging, posting if you do support a local business right now.
Katz: When we get to that third stage, the recovery stage, it’s critically important that we are committed to helping as many businesses get through from here to there as possible because, if we lose 10 percent of the businesses, that’s not enough for a full recovery. Ninety percent of the businesses are not enough for a full recovery. When you look at the tax base that they provide and the jobs that they provide, we need all of these people. These are the tried-and-true operators who can manage a payroll, who can manage a business, who can interact with a market and can understand what a market wants and can understand how to compete in that market. Any of these business owners that we lose, we’re losing a valued resource in our community. So I think it’s worth understanding that our commitment should be total to every one of these businesses.