Keeping Your Business Alive in a Pandemic: Weathering the COVID-19 Storm
Strict measures designed to slow the spread of COVID-19 have had a particularly devastating effect on Native American owned businesses of all types.
Cash is king when you’re a small business, and this is true especially in a time of crisis. Everything needs to be done to look at both the short and long term financial health of the organization. After all, your employees, suppliers, and customers are depending upon you to lead, not just emotionally but also prudently with respect to the long-term finances of the organization. Whatever you can do to conserve cash is going to be critical, because that’s what’s going to determine whether your employees are going to be paid next week, or in the weeks following that.
With the COVID-19 pandemic, there are many huge unknowns. What is the length of the shelter in place mandates that have now slowed most businesses to a crawl? When will it end? Six weeks, twelve weeks, longer? When the doors finally re-open, what will be the length of the economic recovery? Some say it may take as long as three years for a full recovery, but nobody really knows. What will you need to do to keep the doors of your business open at some level now, and also address re-building in a “new economy” when the disease passes? How long will that recovery take? How do you plan to “cross that bridge” from an almost complete shutdown back to a vibrant business? How will you generate the cash required to cross that bridge?
If you are a Native American entrepreneur and need funding to stay afloat in these times, you may be wondering if there are small business loans or grant funding programs available to help you weather the storm. The answer is — maybe. While there are all sorts of relief programs out there, finding and applying for a program that is the right fit for your business can be a challenge. The amount of information and availability of different programs can be overwhelming and raise lots of questions, including:
- Should you seek a loan or a grant?
- Should you seek quick cash as a survival “band-aid” or do you currently have the resources to seek longer term financing to help plan and re-build your business?
- How much money do you think you need? What dollar amounts are available?
- How much should you ask for?
- What should you do to prepare to seek funding?
- What is the most efficient way to plan and use additional funding?
A loan or a grant?
The answer to this question depends on your current financial picture and the urgency of your need. One of the first forms of business financing you should consider for your business is a loan. There are business loans out there specifically tailored to Native American business owners. As with any loan, it has to be paid back with interest, so it’s important to understand what the loan can be used for, the interest rate, and the repayment schedule. We are grateful to Fundera, for providing the following information.
They have ranked the best Native American business loans for 2020 as follows:
- Community Development Financial Institution Loans (CDFI)
- U.S. Department of the Interior Indian Loan Guarantee Program
- U.S. Department of Agriculture Business & Industry Loan Guarantee Program
- U.S. Department of Energy Loan Guarantee Program
- SBA Loans
- Short-Term Loans
- Business credit cards
There are many traditional funding sources out there to assist with longer term planning. On the other hand, if you need to access cash quickly but your credit isn’t in the best shape, a short-term loan may provide the money you need now. Businesses that have been operating for several months, and generating at least $4,000 in revenue each month, should be able to qualify, even if the owner has a relatively low credit score. The ease of applying makes a short-term loan an excellent Native American business loan option, especially if you’ve been rejected by banks in the past. Application processes are very fast for short-term loans, without the need to submit a lot of paperwork.
The process of applying for and receiving a short term business loan can often be done in less than one business day, depending on the lender. Many of the more traditional types of business financing (such as term loans from banks) will take much longer.
Short-term lenders provide loans that are designed to be paid back within three to 18 months with daily or weekly repayment. These loans are perfect for buying inventory or supplies, making payroll, paying for marketing, and other short-term needs.
Expense is the main catch. In exchange for the convenience, you end up paying a much higher interest rate than you would on a longer-term loan. But, your total outlay in interest is limited by the length of the term.
If you do decide to go for a short-term loan, make sure you have a tight understanding on how you will use the money to keep the doors open, pay bills, and plan for the future recovery and rebuild of your business. What will you need to do to bring existing and new customers back? Which of your products/services will be most in demand? Are those products priced properly to attract existing and new customers, with the right margins to ensure profitability? What will be your plan to repay this short term loan?
Similar to short-term loans, business credit cards are another fast and convenient option for Native American business owners. Many entrepreneurs don’t think of credit cards as a financing option, but they should definitely be on your list.
Even if you don’t have your business completely set up and running yet, you can apply for a business credit card. Freelancers, consultants, and home-based business owners are also eligible. All you have to show is some proof of business, such as a copy of a business license or a copy of a recent business tax return.
When compared to consumer credit cards, business credit cards usually offer higher limits and better rewards points. As with all credit cards, make sure you understand the interest rate being charged on purchases.
How to Strengthen Your Business Loan Application
No matter which type of business loan you apply for, you should focus on strengthening your business loan application as much as possible. The stronger your business profile and the more complete your application is, the more reason the lender has to approve your application, no matter whether it’s a traditional bank loan, a short-term loan, or a business credit card application. Here are things to consider:
- Create a business plan – A business plan is required for SBA loans, Dept of Interior loans, and bank loans. Even if a lender doesn’t require a business plan you should consider it essential to your business. A business plan helps you focus on the right things as you grow your company and forces you to be realistic about revenue, profit, and expense projections. With a business plan, you’ll also have a better idea of exactly how much you need to borrow; and it should outline your plan for repayment of the loan.
- In these times, it is important that you review and revise your budget and cash projections, as part of your business plan. Providing the lender with realistic ways in which you will cut costs to “bare bones” in the form of a detailed cash flow analysis, a monthly picture of revenue and expenses over 12 months. A cash flow plan is more than a budget; it is a budget broken down monthly in detail. What money is coming in, when and from whom; and what money is going out, when and to whom.
- Demonstrate flexibility in your plan in terms of meeting customer needs in new ways, including creating more online business; developing new ways to serve your customers within today’s limitations; eliminating slow moving products; and taking a hard look at all expenses, including overhead and staff.
Pertinent to the current COVID-19 situation, the federal government’s $2 Trillion economic relief bill ensures that pueblos, tribes and tribal businesses are eligible for the $454 billion loan guarantee funds and $349 billion available under the U.S Small Business Administration (SBA) Loan 7(a) Program. Please contact the SBA directly, or the state of New Mexico, or US Eagle Federal Credit Union, per below:
Take note of the COVID-19 LOAN PROGRAM offered by the NM Economic Development Department (EDD). This program offers loans up to $62,500 with no collateral required. 80% of the loan is guaranteed by the State. Applications are accepted by participating lenders such as US Eagle Federal Credit Union which covers the entire North Central New Mexico region. To apply, please contact Ernesto Salazar, Business Loan Officer at US Eagle directly at 505-920-3696 or email@example.com. For referrals to other lenders, please contact Mark Roper at EDD, 575-562-0327 or Edd-Finance@state.nm.us. Or, contact Scott Beckman, 505-716-5580, firstname.lastname@example.org; or Lesah Sedillo, 505-920-9257, email@example.com
Other business lending resources can be found at the links below:
State Economic Development Resources for Business: https://gonm.biz/about-us/covid-19-response
- State Workforce Solutions Resources for Business and Employees: https://www.dws.state.nm.us/COVID-19-Info
- Covid-19 Response Fund for Frontline Nonprofits: For more information, contact firstname.lastname@example.org,
- Federal Resources for Business: How to apply for SBA Coronavirus loan or contact your local Small Business Development Center.
- Latest Coronavirus National News, Resources, and Federal Emergency Guidance Updates: https://www.cdc.gov/coronavirus/2019-nCoV/index.html
- Coronavirus Latest NM News, Prevention, Testing, and Treatment Resources: https://cv.nmhealth.org/
- Resources to help in the crisis: https://nmccap.org/about-neir/entrepreneur-resources-links/
What about Grants?
Before you jump into getting a business loan, you want to explore grants as an option. The key difference between a grant and a loan is that you don’t have to pay back a grant, whereas a loan must be paid back with interest.
In general, grants are most often provided by federal and state government agencies, large corporations and philanthropic foundations. Occasionally, there may be opportunities for grants through tribal programs.
Applying for a grant is a competitive process where many small businesses will apply, but only a few will receive an award. Grant-awarding organizations require various pieces of information, but you should plan to include a cover letter, table of contents, executive summary, statement of need, project description, goals/objectives, methods/timelines, and staffing. Most importantly, you need to make a clear statement about how you plan to use the funds if you receive the award, and the social impact you will deliver as a result of receiving the grant. A grant does not give you the freedom to spend the money where you may most need it. You must be able to write a grant proposal that displays your passion for your business, and lists the ways your business will benefit your community with the grant money. It is imperative you carefully read each grant application and follow the instructions very carefully.
With the current pandemic/COVID-19 conditions, there are several foundations offering grants to help. The Santa Fe-based Thornburg Foundation is offering $240,000 in grants to Albuquerque- and Santa Fe-area nonprofits that serve vulnerable populations affected by the coronavirus pandemic, while the PNM Resources Foundation is giving away $200,000 to nonprofits with programs aimed at increasing community safety. The New Mexico Gas Co. has donated $150,000 to the New Mexico Association of Food Banks. The Emergency Action Fund, which was set up by the Albuquerque Community Foundation and United Way of Central New Mexico to fund local nonprofits, has raised over $300,000, with corporate gifts from Wells Fargo, Sandia National Laboratories, Bank of America, Nusenda, U.S. Eagle and Public Service Company of New Mexico. These grants — based largely on community need — may or may not fit your particular business situation.
Some things to consider when applying for a grant:
- Grants are often for very specific activities/purchases. Some grants require you to spend the money on something specific such as a piece of equipment or to send an employee through a training program. Even if the grant does not define a specific activity in the request for a proposal, you will have to clearly explain how the funds will be used when you submit your grant proposal. For example, if your proposal states the funds will be used to purchase a pizza oven or a truck, you will be required to use the funds for that purpose and nothing else.
- Grants are typically small. Most small business grant programs are designed to help as many businesses as possible which means the number of funds any one business can apply for will be limited. Look back at the two example grant programs.
- Grants often require matching funds. This means If you apply for a grant for $5,000 to purchase a bull-dozer, then you will have to have $5,000 of your own money to put toward that purchase (and yes you will probably have to prove that you have the $5,000 and that you actually used it to purchase the piece of equipment).
- Grants are primarily awarded to existing businesses. If you look at small businesses who have previously been awarded grants, you will notice the majority of them were already in operation, even if the business was still considered to be in the startup phase which is the first five years. Funders of these programs want to ensure grant funds are being used in a way that maximizes the impact – in other words, they want to get the most bang for their buck. They know this is more likely to happen when funds are given to a business that has already been started and operating at some level of sufficiency.
- Grants are Sometimes Non-Monetary. Some grant programs provide services instead of actual funds. One such program is one provided by Los Alamos and Sandia National Laboratories called the New Mexico Small Business Assistance Program. Recipients of this grant receive technical assistance in the form of research hours and not cash. Another example is a program that was offered by the Cherokee Nation Small Business Assistance Center where grants were provided to help Cherokee-owned businesses with professional services such as website development, marketing and the services of a CPA to help them set up QuickBooks software.
Some Things to Remember — Now, and Always
You never have enough money, time or resources, no matter what your business is, or what the circumstances are. Make the best use of what you have. Managers are always trying to balance effectiveness and efficiency in their jobs. You are using your valuable resources to reach your business objectives. You’re never going to have enough resources, so use them wisely. If you think you don’t have enough, that may be true. Remember, you’re in the same boat with all other businesses, who think exactly the same thing.
There are five, and only five, ways to increase revenue in your business:
- You can cut costs, but that only goes so far. “Bare bones” survival still requires cash
- You can change your product/service mix to meet today’s needs — that goes to product mix, distribution, and how you communicate
- You can charge more for your services; and improve your margins
- You can sell more products and services to your existing clients
- You can land more new clients/customers
We live in an era of profound and accelerating disruption: technological growth, the information age, changes in customer loyalty, consumption, and competition. Changes in the global economy and the business environment have forced organizations to change the way they do business. This pandemic is an extreme example of that. It is forcing rapid change for every business on the planet.
Any company that will not change, risks being left behind and possible closure because their strategies, structures, systems and organizational culture will grow increasingly obsolete. Change programs that succeed put an equal emphasis on both performance and health in answering seven basic change management questions that should shape any new approach to the market and your customers:
- Where are we?
- Where do we want to go?
- How ready are we to start?
- What practical steps do we need to take?
- How will we manage the journey?
- How do we keep going forward?
- How do we avoid mistakes?
- How much money do we need to fund activities?
- What will it take to break-even?
- What will it take to achieve and sustain profitability?
We are in tough times. Do the best you can. Keep the faith.
**For a list of resources, like funding, support, and grant opportunities, please regularly check our site.