The answer is pretty shocking!
Recently the US government has stepped in and decided to issue these economic policies to help ease the corona virus impact on the US economy:
- SBA to Provide Disaster Assistance Loans for Small Businesses Impacted by Coronavirus (COVID-19)
- Federal Reserve dropped interest rates to 0%
Will these 2 new policies help you save your business? Let’s look at each policy in depth to decide if your business can benefit from this.
Let’s start with the emergency SBA loans. The interest rate is 3.75% for small businesses without credit available elsewhere; businesses with credit available elsewhere are not eligible. The interest rate for non-profits is 2.75%.
This means your SBA loans have to be a last resort. You will need to show proof that you have applied to other lending sources and have not been given approval. They do not want banks routing loans through the SBA program to reduce their lending risks. This makes a good point. All these emergency loans are seen as lending risks. There still needs to be some sort of standards in place to minimize the risk to the government. Will you qualify for these SBA emergency loans? The requirements to qualify are just as stringent with the necessary documentation to prove your worthiness.
Let’s say you provide your documentation and now you apply. What is your number in line? There is a rush of applicants due to the disaster. Will you be happy with getting your money one year from now? Will your business survive that long without the additional funds? Does the government have the necessary infrastructure to handle all these loans in every state?
When hurricane Katrina hit the SBA approved more than 20,000 small-business disaster loans but borrowers had to wait five months on average before they received a check, according to a Government Accountability Office review of SBA’s performance.
Hurricane Katrina only affected 3 states. The corona virus has affected nearly every state in the US thus far. Imagine the number of applicants the SBA will need to process when these loans are made available. The US government does not have the infrastructure in place to process all these applicants. The wait time will be enormous. You have to ask yourself if your business will survive during this time. Most likely the answer is no. You need cash now to pay the bills and make a living.
One alternative is an MCA loan. Merchant Cash Advance can provide funding in 4 days. This is done with little documentation and low credit score. It’s an option and a way for you to continue doing business. If you time it right, you will not see a dip in profits once business picks up and you have survived the worst of the pandemic.
But wait, you say didn’t the Fed drop the interest rates to 0%? Shouldn’t my loans drop to zero percent? Can I take out a loan for 0% financing? Well let’s make sure we understand what the drop in interest rate applies to. This only applies to consumer short term interest rates. This helps reduce the cost of borrowing but no one will get a zero percent loan. This forces banks to adjust the rates on everything from savings accounts to credit cards.
What this does is lower your current credit card rate by 1%. You read that right; this just brings down the current national average of a credit card from 17.35% to 16%. That’s not much of a decrease for average everyday people who own small businesses. That decrease saves you about $5 every month if you owe $5500 on your credit card. As a small business owner that saving almost amounts to nothing.
Big corporations will reap the rewards from the rate cut. Big corporations owe millions in debt. Any percentage change will bring them great benefits. Small business owners don’t see much of a gain from this. As a matter of fact your savings account interest drops. So you’re making less money on that. Any business loans you need now won’t see much of any change. This was really a way for the Fed to calm the market. They want investors to stop the dow jones from falling more. This also had the added benefit of allowing private lenders to see a surge in sign-ups from consumers and use that data mining for future gains.
It’s pretty clear if you need emergency money you have a few avenues but you need to weigh the speed and amount of your funding. How fast do you need it and do you qualify? Time is the difference between shutting down or having money to continue or start over. If you need fast cash ASAP, consider an MCA. Merchant cash advance is a fast and easy way to get capital to continue doing business when an emergency hits. Merchant Post Funding is here to help you during these times of crisis.