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[Toolkit] Got debt? How to strategically use coronavirus loans and your lender for business recovery

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Over the past year, hospitality businesses in Washington state have been treading water, trying to keep afloat during two shutdowns and an uncertain future.

Julie Eisenhauer, a certified public accountant at Clark Nuber who specializes in hospitality, said that it is important for you to maintain a good relationship with your lender during these uncertain times, so they know where you are coming from and you know what your lender needs.

“They’re going to want to see your story,” she said.

Your lender will want to know if you can cover your current obligations and they want to know how sustainable your business is during the best of times. Be proactive with them when times are rough and talk to them about what your plan is moving forward. Your lender will want to know that your business is sustainable.

Eisenhauer also suggested that when we return to normal, look back at this past year and learn what you can do better. Did you have enough funds in your reserves to get through the times before you could get some financial relief?

“I like six months of expenses,” Eisenhauer said.

Rick Braa, a financial consultant in the hospitality industry, said if you have loan payments coming due, applying for government-backed loans may be a good idea. Banks consider restaurants as high-risk and may not be inclined to lend you more. This is why you may have a balloon payment coming up or higher interest rates. With loans through the U.S. Small Business Administration, about 90% of the loan is guaranteed by the government and you can use some of these funds to pay down your bank loans.

In the coming months, there will be many opportunities out there to find financial relief.

“Take advantage of all the opportunities available right now,” Eisenhauer said.

Small Business Administration 7(a) Loan

Braa said that if you have a balloon payment coming up with your bank, you may want to refinance with a U.S. Small Business Administration 7(a) loan. Banks are more likely to take on these loans because most of the funds are guaranteed by the administration. You can refinance your existing loan with the bank if you aren’t using the new 7(a) loan to pay off another U.S. Small Business Administration loan.

Paycheck Protection Program

The U.S. Small Business Administration is still offering Paycheck Protection Program (PPP) loans through May 31, 2021. A feature of the program is that you may apply for loan forgiveness if certain conditions are met, such as during the eight- to 24-week period you maintained employee and compensation levels, the loan was used to pay for payroll costs and other eligible expenses and at least 60% of the loan was spent on payroll.

Economic Injury Disaster Loans

“I encouraged all my clients to get it,” Braa said about the Economic Injury Disaster Loans (EIDL). This is a 30-year loan with a $500,000 limit. It also carries a 3.75% interest rate. Business owners who take out this loan can use the funds for working capital and other expenses such as health care benefits, rent, utilities and fixed debt payments. Plus, Braa likes that payments are deferred on these loans for one year. In fact, he likes this loan so much, he encourages his clients to apply for them whether they need them right now or not. Small business owners in all 50 states are eligible for these funds.

It is important to remember that there are resources out there. You just need to figure out what works best for you and your business. Please note that you cannot use these federally backed loans to pay back other federally backed loans: just the ones you’ve incurred through your own lender. If you want more information about financial resources, we have put together some resources for you below.

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