I’ve spent the past five years building my own catering company, and before COVID-19 hit, things were really taking off. I do events for big corporate clients, and I was expecting to pull in about $100,000 in March — one of my busiest months ever. Then it was like a switch flipped, and everything was canceled in a matter of days. I rent my own kitchen space in New York, and there was no way I could afford to keep it running. So I had to close my doors, cut off gas and electricity, tell all my contractors that their work was canceled, and let my one full-time employee go so that he could collect unemployment. My landlord was super sympathetic and put my rent on hold for three months, which is really lucky. But who knows how long this will last.
I’ve always reinvested everything back into my business, so I basically have no savings. My husband also works in the food industry, so neither of us have any income right now. We’re currently living off the remains of a $125,000 small-business loan that I took out last summer to renovate my kitchen space, but there’s very little left. I’m also five months pregnant, so neither of us want to risk trying to find side gigs that could expose me to possible infection. When I’ve looked into applying for government relief, it seems like I’d only be eligible if I had employees, which I don’t anymore. Are there any grants or relief funds for self-employed people like me? What about zero-interest loans that I can take out to restart things once it’s safe to do so? There’s a lot of overhead involved in catering, so it’ll be expensive to start over again. I just don’t know what to do.
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First of all, congratulations on building a thriving business in a competitive field. I can’t imagine how frustrating it must be to watch five years of planning and hard work get wiped out in a matter of days, just when it was starting to pay off (and just as you’re starting a family!). For what it’s worth, it sounds like you’ve made all the correct decisions so far, in terms of closing up shop, being forthcoming with your staff and landlord, and staying home and healthy. You’re doing everything right.
So, good news first: The government is currently shoveling an unprecedented amount of money into programs designed to aid small-business owners and self-employed people like you who have seen their incomes disappear overnight. The bad news is that these programs were slapped together in a rush, and all the middlemen are now scrambling to figure out how to make them work on the fly. The process will be messy at best.
Which brings me to a big, annoying, wet-blanket caveat that I can’t be 100 percent certain about any of this advice. It all hinges on how well the CARES Act — the federal government’s $2 trillion rescue legislation that went into effect almost two weeks ago — actually works. (As if you needed more uncertainty right now, I know.) The rollout has been slow and glitchy, to say the least, but if its programs do what they’re supposed to, you should qualify for a lot of help.
To figure out your next steps, I called Rafael Espinal, the executive director of the Freelancers Union, which specializes in advocating for self-employed people. I also spoke to Ken Alozie, a financial planner and mentor at SCORE, an organization that works with the Small Business Administration to counsel small-business owners. Here’s what they said you should do.
Apply for Pandemic Unemployment Assistance online.
The new Pandemic Unemployment Assistance (PUA) program basically applies to anyone whose income was affected by COVID-19. You are a slam-dunk candidate. The process is a little ass-backwards because there are two steps — first you have to apply for traditional unemployment insurance, here, and get rejected (which you will be), at which point you can qualify for PUA funds, here.
Best-case scenario, you may be eligible for the maximum weekly benefit rate, which is $504 in New York for up to 39 weeks, plus an additional $600 per week allotted by the CARES Act through the end of July. So, to do the math, you could receive direct deposits of up to $1,104 every week for almost four months, and then a smaller amount for about five months after that. You can also receive PUA benefits retroactively, starting from when you had to close your business. Your husband should apply for all of the above, too. None of this money is a loan — it’s yours outright.
Apply for disaster-relief funding, also known as an Economic Injury Disaster Loan (EIDL), through the Small Business Administration.
Through a program that existed long before the coronavirus, the Small Business Administration offers low-interest loans of up to $2 million to aid businesses that are temporarily crippled by some kind of unforeseen disaster (sound familiar?). Now, in response to the coronavirus, that program has gotten a huge influx of cash from the federal government. The convenient thing about EIDL funding is that you don’t have to deal with a bank — you apply directly through the Small Business Administration’s website. But the confusing part is what, exactly, you’ll have to pay back — it’s basically part loan, part grant, and potentially part forgivable loan. Obviously, you don’t want to apply for anything without knowing what you’ll be on the hook for, but Alozie says you should go ahead anyway.
“I always tell business owners to start by applying for an EIDL loan,” he says. “Even if you don’t end up qualifying for it, you will probably be eligible for the advance that’s being offered to applicants, and the advance is a grant, meaning you won’t have to pay it back.”
The advance (or grant) isn’t huge — it’s $1,000 per employee of your business, up to a $10,000 cap, so as a sole proprietor, you’d be eligible for a one-time payment of $1,000. But it’s better than nothing, and it’s quick. Alozie says the application, here, only takes about 15 minutes, and you won’t have to upload anything. “The Small Business Administration might reach out at a later date if they need more supporting documents, but right now you just check a box to be considered. And I’ve heard from a couple of small businesses who have already received the advance in as little as three days,” he says.
It’ll take a while longer to find out if you qualify for an actual loan from the EIDL program, and if you do, you will be on the hook to repay it. As of right now, the interest rate is 3.75 percent, and you won’t owe any payments for the first year. But! There’s a major break baked into the system: If you qualify for the Paycheck Protection Program (PPP), which is your next step, you can roll your EIDL debt into your PPP loan, and potentially get almost all of it forgiven. “If you qualify for the Payroll Protection Program, you could end up owing basically nothing at the end of the loan,” says Alozie.
Apply for the Payroll Protection Program (PPP) through your bank.
The Payroll Protection Program offers forgivable loans of up to $10 million to cover up to eight weeks’ worth of payroll for your employees — in this case, you. “Sole proprietors can apply for the PPP even if they don’t have any staff, because they’re technically their own employee and need to cover their own lost wages,” says Espinal. “It’s still a loan, but the portion you use to cover things like payroll and rent are all forgivable.” (Note that the forgivable portion of the loan covers payroll up to a $100,000 annual cap. To calculate your own payroll, you may want to enlist the help of an accountant, if you have one. This article also does a good job of explaining the steps, if you want to try to do it yourself.)
If you follow the guidelines and only use your PPP loan to cover payroll expenses and rent for your kitchen space, the principal may be entirely forgiven. But you will still have to pay interest on it. The rate is very low — about .5 percent, currently, although that may change.
Alozie recommends applying for EIDL funding, the PPP loan, and unemployment benefits at the same time. “These resources, particularly the two different types of loans, are related but different, so you want to explore all avenues,” he says. Also, approval for one program doesn’t preempt approval for another. “You can apply for all of these things and potentially qualify for them at the same time,” he says. Which, best-case scenario, would put you in a pretty strong position to jump-start your business once it’s safe to do so, without taking on any additional debt at all.
See what else your bank can do to help, and if you qualify for other local aid programs.
“If you have a relationship with any lenders, or your local bank, reach out to them and find out what opportunities are available to you,” says Alozie. “Whoever granted your small business loan should be willing to give you a break with payments for the coming months.” Also, move quickly. “All of these relief funds are available on a first-come, first-serve basis, so you want to get the ball rolling fast, because there may not be enough aid for everyone who wants it. And lenders are totally overwhelmed right now, so the sooner you get in in line, the better.”
Good luck, and stay safe.