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How to keep coronavirus from bankrupting your business

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The coronavirus pandemic has forced architecture and design firms around the country to close their storefronts and offices, move their operations fully online, and lean on a remote workforce to continue doing business.
But landing new projects and keeping clients from delaying planned work is tricky when much of the country has been laid off and almost all companies have seen a drastic drop in sales. More than half of businesses expect to lose between 10% and 30% of their annual revenue because of the coronavirus, a survey from the Society for Human Resource Management (SHRM) found. And a quarter expects to lose more.

If your firm is likely to be in a similar position and is struggling to find the cash to pay for staff, rent, and other bills now, there are a couple of smart moves you can make to help you carry on, according to management consultants and financial experts who spoke with AD PRO.
Here are a few steps—from internal choices to external help—to help you stay afloat.

1. Cut back expenses

With everyone out of the office, you’ve likely already saved on utility payments and supply costs this month. Employee work travel expenses should be nonexistent. But you should use this time to review your budget and look for any nonessential costs you can do without in the short term. Maybe you can suspend membership organization fees you’ve been paying or drop the marketing and advertising budget, says Providence CPA Peter Lang, whose firm, The Designer CPA, specializes in interior design business accounting.

If you’re already running a lean office with little fat to cut, focus on what is usually the largest expense: payroll. It’s an unpleasant topic. No one wants to cut staff during difficult times, but it may be necessary if you want employees to have a business to return to when the pandemic ends. And know you’re not alone: More than half of small businesses with fewer than 100 employees say they can’t afford to pay staff for a full month under quarantine, according to a March survey by the SHRM.

Lang recommends being upfront with employees about the financial difficulties the company is facing and, as the owner, taking the first step by either suspending or reducing your own pay. If that move still doesn’t free up enough cash, it may be time to implement wage cuts of a certain percentage, either across the board or in varying amounts depending on salary and seniority, or scale back working hours.

Finally, you may need to lay off employees or, as many firms have done, furlough staff for the time being until the current stay-at-home orders are lifted and businesses can operate normally again. Furloughed workers will essentially be on a temporary, unpaid leave of absence until the business reopens, meaning they can’t perform any work duties or receive wages, but you can opt to continue providing health insurance or other benefits coverage.

2. Negotiate with your landlord

While many states and cities have passed both commercial and residential eviction moratoriums to help provide some relief to worried renters, it hasn’t relieved tenants from payments on their office spaces.

Speak with your landlord about breaking the initial terms of your rental agreement. While they won’t be pleased, many would rather deal with struggling tenants who’ve previously had solid payment histories than opt for vacancies right now since there will be few to no competing offers for the space, says Ashburn, Virginia, financial planner Aaron Clarke of Halpern Financial.

Attempt to pay as much of the rent as you can and inform your landlord about the difficulties you’re facing and the steps you’ve taken (and continue to take), to avoid becoming delinquent. Offer an alternative payment arrangement while the pandemic lasts by asking for a temporary deferment or a reduction in rent. Then when the pandemic ends, pay back the missing sum in installments over the remainder of your lease. Whatever you and your landlord decide upon, get the details down in writing to protect your company.

3. Increase payment term lengths

Many architecture and interior design firms are not just experiencing a cash crunch because of a drop in new clients and projects, says Lisa Henry, CEO of the Greenway Group, an architecture and design advisory and consulting firm with offices in Atlanta, Boston, metro New York, Colorado Springs, and Denver. A big challenge is collecting on work that has already been done.

“Clients want to conserve cash and are delaying on paying even though bills are due,” says Henry. “They are trying to hold off paying for another 30 or 60 days, but the architecture and design firms need to pay for things within their own company, meaning they must lean on their own trade credit to extend terms during this time.”

Just as clients have likely done to you, you’ll want to call on the businesses you purchase from and ask for an extension of payment terms, between net-30 and net-90 days, to allow your company more time to collect from clients.

It’s often an uncomfortable conversation, but if you do have clients with past-due bills, use this time to reach out to them and attempt to get them to pay up, citing the contracts both parties signed. If you do sign new business in this period, shorten your own payment terms from, say, 90 days to 45 days to inject cash into the firm quicker.

4. Refinance your business debt

If you’ve got existing debt obligations that you’re struggling to meet currently, contact your lender and “ask what they can do to help your business,” says Clarke, of Halpern Financial. “If you’ve had a bad month or two but can show you’ve got future projects in the works, the bank might be willing to let you defer one or two payments or work out another arrangement.”

Check online to see if your lender has already put in place policies for dealing with payment issues relating to coronavirus or applications for deferments. Those with certain Small Business Administration (SBA) loans may already have relief options that allow deferment for up to six months.
Your lender might also be willing to offer a longer-term solution: refinancing. Interest rates were already at historic lows and, in March, in response to the virus, the Federal Reserve cut its benchmark interest rate to 0.25%. While you won’t see rates so low, some banks might be willing to offer you a better interest rate than your current one if you’ve got a good credit history, and allow you to lower monthly payments over an extended loan length, meaning you save on interest and free up cash.

Business owners who’ve bought their own offices, shops, or design studios could see greater success with this strategy because secured debt, like a mortgage on a commercial property, is viewed as less risky by lenders since they can seize the asset if the owner defaults.

Success could also depend on who the lender is, says financial planner Mitchell Kraus, cofounder of Santa Monica, California–based Capital Intelligence Associates. “With smaller banks, you have more flexibility in terms of negotiating because your loan is much more important to them than it would be to a large institution.”

If your debt is on a business credit card, consider doing a balance transfer to a new card with a 0% interest rate promotional period. With such cards you could have a year or more to pay off the transferred debt before interest charges begin accruing, though you will pay a fee (usually between 3% and 5% of the total amount transferred to the card). The U.S. Bank Business card, for example, offers an introductory 0% interest rate on purchases and balance transfers for the first 20 billing cycles before charging a variable rate between 9.99% and 17.99%. And the American Express Blue Business Cash card offers a 0% interest rate on purchases and balance transfers too, but only for the first 12 months before spiking to a variable rate of 13.24% to 19.24%. You’ll need an excellent credit score to qualify for such cards, as this perk is far harder to come by for businesses than it is for consumers.

5. Borrow from your retirement savings

Though using funds earmarked for retirement can be risky, business owners may find it easier to borrow from themselves than from banks or the government, says Kraus. “Taking money from an IRA or 401(k) can be a better stopgap funding measure.”

Thanks to the Coronavirus Aid, Relief and Economic Security (CARES) Act, you can withdraw up to $100,000 from a 401(k), IRA, or similar type of retirement account until the end of the year without facing the usual 10% early withdrawal penalty. You can qualify for this special provision if you have experienced financial difficulties resulting from being quarantined, furloughed, or working reduced hours or if you, or a child or spouse, tests positive for COVID-19. You will still pay income tax on the withdrawals, which could bump you up into a higher tax bracket next year.

Alternatively, if you currently participate in a 401(k) plan, you can borrow up to 100% of your vested account balance up to $100,000 within the next six months because of the CARES Act. Unlike with a withdrawal, this money will not be taxed but it must be repaid, typically within five years. If you lose your job, say because the business shuts down, the outstanding balance will be due much quicker, and any funds that are not repaid by the deadline are treated as a withdrawal, meaning you could face a tax penalty and income taxes. You will also pay interest on the loan, but since it is from your own account, you’ll be paying it to yourself.

6. Apply for government assistance

The CARES Act also provides $350 billion in loan assistance to small businesses with fewer than 500 employees to help cover payroll costs and other expenses during the coronavirus pandemic.

Managed by the SBA, companies can apply for payroll-protection loans, which are intended to cover necessary expenses such as payroll, health care, rent, utilities, and business debts, to keep operations going and retain staff from now until June 30. The program will also be retroactive to February 15, so firms who applied for SBA help earlier in the year can still qualify. Lenders began processing applications for small businesses and sole proprietors on April 3. Independent contractors and self-employed workers can apply starting today.

A business can borrow as much as 2.5 times its average monthly expenses, up to $10 million. Loan payments will be deferred for six months, and neither the government nor lenders can charge any fees.

The SBA will forgive a borrowed amount equal to eight weeks’ worth of expenses, says Lang, but you will need to apply for such forgiveness and provide documentation showing it was used as intended. To qualify, funds must be used for payroll costs, mortgage interest, rent, or utilities, and at least 75% of the amount you’re looking to have forgiven must have been spent on payroll. The forgivable amount will be reduced if your full-time staff declines or if wages decrease. For any loan amount that is not forgiven, the money must be repaid in two years at a super-low interest rate of 1%.

Small businesses can also apply for the SBA’s expanded Economic Injury Disaster Loan program—which traditionally offers aid to businesses located where federally declared disasters occurred, but now covers companies in all states and territories. Businesses can borrow up to $2 million at an interest rate of 3.75% and repay the sum over as long as 30 years. Companies should also try for the program’s emergency advance, a $10,000 sum that does not need to be repaid and is intended to help assuage a temporary loss of revenue because of the coronavirus.

However, receiving the money may take more time than the SBA website states, as some banks, like Citi, have not opened their online applications for such aid yet. Other banks have reported receiving tens of thousands of applications within the first few days, leaving staff overwhelmed. Several large banks have come under fire as well for adding their own requirements that businesses must meet to receive the SBA loans.

For instance, Money reports that Bank of America is requiring that loan applicants have a small business lending and small business checking relationship already with the bank, or an existing Bank of America checking account and no other credit or borrowing relationship with another bank.


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