Without cash, your business is as good as closed

Businesses this March quickly went from normal to cautious to a standstill. No wonder small business owners were in a state of shock. Who would ever have predicted these events?

To add to confusion over when, how and if a small business could operate, owners worried about their own health and the safety of family members.

Numerous assistance programs unfolded in the course of a few weeks – the SBA Economic Injury Assistance Loan, the Connecticut Recovery Bridge Loan, the SBA EIDL loan advance (grant), the Cares Act covering the Paycheck Protection Program and the COVID-19 Business Response Line of Credit (for women and minority owners).

CEDF’s Business Advisors had uniform advice for our clients – apply for everything for which you are qualified. To add to the stress of more than a few late evening phone calls with anxious, upset clients, it’s perplexing for our Business Advisors when they feel like they helping throw a life ring at a drowning business owner, only to have the ring and sometimes the rope thrown right back ashore.

“I don’t want to take on any more debt,” was a common assertion. It’s a sentiment that under normal conditions would have brought praise for prudence. But these were not normal times and the terms of the assistance programs were amazingly generous. What our Business Advisors saw that some clients could not yet, was that events even a few weeks into the future were entirely unpredictable. Who could say if the pandemic would get catastrophically worse, or how long non-essential businesses would be shut down? And who could say if another chance for help would come?  Under these conditions, only liquidity matters. If you have no revenue and the meter is still running on certain fixed expenses, your business is sinking into the mire by the day, but what will save you is if you will have enough cash to pull out when business resumes. Remember, most small business owners, unfortunately, don’t typically have more than two weeks of cash available.

So it fell to our Business Advisory team to reinforce that a 30 year loan at 3.75% (EIDL), or a zero interest bridge loan, or a 1% PPP loan (if not entirely forgiven) was unlikely to be the demise of their business. But not having the money to pay a landlord when you are 90 days behind, or having utilities shut off, or being unable to order materials from vendors surely could.

Not to criticize those who felt fearful in those early weeks, but there is a very important business lesson that stands out from this experience. As businesses start to reopen this summer and many owners assess their financial condition after having lost so much revenue, we hope those who applied for and received all the help they could will find it was sufficient and reflect on this lesson – liquidity is everything.


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