Bar owners, like so many business owners, learn to become masters at juggling bills to make it through cash flow crunches. In many ways, they face the same challenges local restaurants face, but neither restaurants, nor bars, have ever faced the prolonged shutdowns and restrictions they’re facing today. Navigating the crisis caused by COVID-19 is going to be a challenge for many bar owners. Fortunately, small business owners are a pretty resilient bunch, and there are ways to navigate the coronavirus storm.
Here are four options to consider if your bar business can’t pay its bills:
1. Apply for a COVID-19 Relief Loan
There are still funds available through the Paycheck Protection Program (PPP). This program provides forgivable loans of up to 2.5 times average monthly payroll. Any balance not forgiven becomes a loan with a 1% interest rate.
Many businesses, such as bars and restaurants, haven’t found these loans to be the right fit for their business. Congress is listening and there are bipartisan efforts to make it easier to simplify the forgiveness process and to give business owners more time to spend those funds as well as allowing them to spend a greater portion of the loan on non-payroll expenses such as rent. If you’ve been hesitant to apply, you may want to reconsider. You can always decline the loan or pay it back without a prepayment penalty if you determine it’s not right for you.
If you applied for an Economic Injury Disaster Loan (EIDL) but haven’t been approved, check your email spam folder. Many business owners have discovered emails from the SBA were automatically directed to spam. Be careful though. Double check that any email to which you respond came from SBA.gov, and do not fall for scammers trying to charge you fees to get one of these loans.
2. Consider Crowdfunding
A crowdfunding campaign may allow your loyal customers to support your business even if they can’t be there in person. Ginger’s Bar in Brooklyn NY exceeded its initial fundraising goal in just 24 hours making it eligible for matching funds from GoFundMe’s Small Business Fund. It raised more than $20,000, exceeding an initial goal of $15,000. Cole’s in Chicago raised $12,425, also exceeding its $12,000 goal.
In addition to donor-based platforms like GoFundMe, equity-based platforms allow you to raise money from investors and debt-based platforms like Kiva provide loans. (In Kiva’s case, the loan is at 0% interest with no fees.)
3. Pay As Little As You Can
Business owners often bootstrap, are debt-averse, and don’t like to carry balances on their credit cards or other debt. But this may be a time to focus on preserving cash flow for as long as possible. As long as you make the minimum payments on credit cards and other debt, you can help preserve your credit rating. (High balances can affect credit scores, but they can improve when the debt is paid down. Late payments can last seven years on personal credit; there is no time limit for how long they can be reported on business credit reports.)
Some creditors may allow you to defer payments. Typically those payments will be tacked onto the end of the loan. They’d rather do that than have your business default or file bankruptcy. It doesn’t hurt to ask your creditors what kind of relief may be available.
4. Talk to a Debt Expert (or Three)
Falling behind on bills can be incredibly stressful. Many business owners have used personal loans or signed personal guarantees, which means defaulting on business loans may impact their personal finances as well. Don’t be shy about reaching out for help.
Non-profit credit counseling agencies, such as those who are members of the National Foundation for Credit Counseling, can review your situation and help you understand options for paying back your debt. For example, you may be eligible for reduced payments on some of your credit cards (personal credit cards only). Visit NFCC.org or call 1-800-388-2227 for a free consultation
Another option is debt settlement. Some creditors will allow you to settle debt for less than the full balance as an alternative to bankruptcy. “If you are on the hook for debts personally, getting an estimate of what your creditors will settle for, and when, makes sense,” says Michael Bovee, founder of the Consumer Recovery Network, who has consulted with hundreds of business owners over the years.
And yet a third option is to talk with a bankruptcy attorney. The recently enacted Small Business Reorganization Act (SBRA) amends the Bankruptcy Code to make it easier and less expensive for businesses with less than $2,725,625 million in debt to restructure under a streamlined process. In addition, the CARES Act temporarily raised the limit under the SBRA to $7.5 million in debt, provided that 50% or more of the business debts arise from business or commercial activities.
Many business owners put off getting help with their debt, including talking with a bankruptcy attorney, as long as possible. But that can lead to costly mistakes, such as raiding retirement funds to stave off the inevitable closure of the business.