Over the last few weeks, most restaurants and brick-and-mortar stores have been doing a fraction of their normal business and, in many cases, no business at all.
For nearly half of small businesses, those lost weeks could be enough to push them into the red. Enough to make it impossible to pay rent, which for many is due today for the first time since the start of the COVID-19 outbreak in the U.S.
Even some big businesses say they can’t afford rent. The Cheesecake Factory sent a letter to its landlords in mid-March informing them it would not be paying rent because the virus “inflicted a tremendous financial blow to our business.”
That will likely be harder for small business owners to do.
“Small businesses clearly don’t have the leverage that those big chains do,” said Jared Nicholson, director of the Community Business Clinic at Northeastern University School of Law. “While the landlord is going to be willing to cut a deal with a huge customer, the tiny small businesses may not be able to get that kind of break.”
If you’re a small business owner who may not be able to afford rent this month or next, what can you do?
Check your lease
“Take a look through your lease and see if there’s anything in there having to do with suspending rent obligations during an emergency, during a crisis, or during a time when the government forces your business to shut down,” said Arthur Kats, director of the Microenterprise Project at Volunteers of Legal Service in New York.
Your legal obligations, and your options, largely hinge on what’s in your lease. In most cases, Nicholson said, “the answers in the lease, particularly in these commercial leases, are probably not going to be very favorable to the commercial tenants.”
That is what Kats is finding so far with small business owners he’s advising in New York. “The vast majority of our clients that we’re seeing have no automatic right to suspend their rent obligations during this crisis,” he said.
Similarly, most insurance policies do not offer much protection under current circumstances.
“A lot of the policies that people would be thinking about is the business interruption insurance,” Nicholson said. “A lot of times that requires physical damage to the property. Every policy is different, everyone has to look at their policy. But at first glance, a lot of these business interruption insurance policies aren’t going to cover what’s happening right now.”
It’s also worth calling your lawyer for help deciphering your lease, strategizing about how to negotiate with your landlord, and figuring out what assistance programs you may be eligible for.
If you can’t afford an attorney, there are legal services that do free consultations with small business owners, including small business clinics at many law schools, and non-profit organizations like the Microenterprise Project and Lawyers for Civil Rights, which has a project that matches small businesses with attorneys willing to work pro bono.
Call your landlord
If you’ve gone through your lease and found you’re still on the hook for rent, the next step is to try to negotiate with your landlord.
“Call your landlord, say, ‘For obvious reasons, I’m going through difficult times. I see a path where I can continue this lease, or I can continue this mortgage and support my business, and we can be long-term partners, but I do not have the cash to pay,’” said Michael Roth, a managing partner at the advisory firm Next Street.
Nicholson at Northeastern said they were getting reports of landlords willing to negotiate. For many landlords, it’s mutually beneficial to work something out if it means a tenant’s business survives until shelter-in-place orders are lifted.
If you do come to an agreement with your landlord to suspend or defer rent, or pay less, “write that agreement down,” Kats said. “Make sure both parties sign it, even if it’s by an email, talk to a lawyer, if you have the access, to make sure that that agreement is in writing and enforceable after all of this is over.”
It’s also helpful to go into a negotiation knowing the financial aid available to you.
“A really important one will be the federal stimulus funds, the loans available through the SBA,” Nicholson said. “Rent is specifically made an acceptable use of the proceeds from the loan. And in some circumstances, that expenditure could be forgiven.
“If you call up your landlord and are interested in negotiating, my sense is one of the first questions they’re going to be asking is: Do you have those stimulus funds? Is that something that we could work with?”
Apply to the new Paycheck Protection Program
Starting on Friday, small businesses will be able to apply for an emergency loan — much of which can be forgiven — using the new Paycheck Protection Program.
The program, run by the Small Business Administration and the Treasury Department, came out of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Small businesses and nonprofits with fewer than 500 employees can apply for a loan of up to $10 million. Any portion of the loan that goes toward payroll costs, rent, mortgage interest or utilities in the first eight weeks will be forgiven — as long as at least 75% was used for payroll.
This is a “phenomenal, phenomenal product and program that small businesses will be able to have access to,” Roth said. But, he added, not everyone will be able to access the funds they need, at least not right away.
“My biggest advice to any small business is get your documents in order now,” Roth said. “Make sure that you have everything. If you have a banker, call them as soon as you can. You’re not going to be able to reach them because they’re going to be getting 10,000 calls, but just keep dialing, make sure that you are in close contact with them, and do whatever you can to be the first one to apply, because it’s going to take awhile to get through.”
You can also apply for an SBA Economic Injury Disaster Loan instead of or in addition to a PPP loan. Unlike PPP loans, though, EIDL are not eligible for forgiveness. If you’ve already applied for a disaster loan, you may be able to refinance and convert it into a PPP loan to have it forgiven.
Look for local funding sources
At city and state level, there are other sources of funding for small businesses. Philadelphia created a $60 million fund to offer loans to small businesses. Chicago just launched a $100 million fund. Other cities and states are making resources available, too.
“Unfortunately, there isn’t a one-stop shop where you can find this right now,” Roth said. “But Google is your best friend. So are the small businesses on the block with you who you’ve worked with before. Ask them where they’re getting funding from. Find your local resources.”
And as with the Paycheck Protection Program, he added, act quickly: “The demand… has been out of control.”