Most large corporations have some debt as a standard financing practice. Depending on the economic situation, debt financing can be far cheaper than investor financing. But for many small businesses, having to service debt each month can mean the difference between taking home a paycheck or not, hiring one more employee or working extra hours, or paying your bills on time. Cash is oxygen to small businesses, so you can, and should, pay down your debt. Here are several ways in addition to sacrificing income, new hires, and personal time.

The US Small Business Administration (SBA) Debt Relief

From the SBA website: “The SBA will pay 6 months of principal, interest, and any associated fees that borrowers owe for all current 7(a), 504, and Microloans in regular servicing status as well as new 7(a), 504, and Microloans disbursed prior to September 27, 2020.” If you have one of these loans, you do not need to apply for this assistance. According to the SBA, assistance will be automatically provided as follows:
  •  Loans not on deferment, SBA will begin making payments with the next payment due on the loan and will make six monthly payments.
  • For loans currently on deferment, SBA will begin making payments with the next payment due after the deferment period has ended, and will make six monthly payments.
  • For loans made after March 27, 2020, and fully disbursed prior to September 27, 2020, SBA will begin making payments with the first payment due on the loan and will make six monthly payments.
SBA borrowers should contact their lender for answers to specific questions about this payment relief plan.

SBA Economic Injury Disaster Loans (EIDL)

On June 15, the SBA announced that the EIDL program is open again. Small business owners in the US, including Washington D.C. and territories, can apply for an Economic Injury Disaster Loan advance of up to $10,000. This loan advance will not have to be repaid. Recipients do not have to be approved for a loan in order to receive the advance. The amount of the loan advance deducts from the total SBA loan eligibility.

Corporate Assistance

That’s right: corporate America is helping out America’s small businesses. Here are just a few examples of US enterprises lending a helping hand to small businesses. While such help is generous, keep in mind that it is in these corporations’ best interests to help out the small businesses that put money in their bank accounts. For example, Morgan Stanley's Brian Nowak estimates small businesses comprise 30% to 40% of Facebook's overall advertising base.
  • Facebook is offering U.S. small businesses $40 million in grants to help them navigate the coronavirus crisis. Go to facebook.com/grantsforbusiness to determine if your business is eligible. They also rolled out additional features to help small business owners. Facebook now lets business owners to start a Facebook personal fundraiser for their own business. So they can ask their most loyal customers for help with operating costs during the crisis. In addition, they made it easier for businesses to communicate temporary service changes — like changes in open days and hours — to their customers.
  • Lowe’s has put up more than $50 million in various types of relief funds for small businesses since the COVID19 pandemic hit the US. In this latest round of funding, the company will “offer small business grants through some of the company's key partners. Including its supplier diversity network. The funds will also expand support to small business home improvement professionals.”
  • Vistaprint, Facebook, Verizon, and others offer grants that can help keep your small business afloat during the coronavirus crisis. Companies can qualify for these grants if they have 3 - 20 employees. Located in an economically vulnerable community, and have been impacted by the COVID-19 crisis.
  • Finally, here’s a guide of all the companies (as of this writing) offering small business assistance in many different ways to help America’s small businesses weather this storm.
Regardless of how you do it, whether you listen to Clark Howard or Dave Ramsey, what you need is a plan. Now that you have a few more tools in your belt, you can make that plan to pay off that debt and free up that cash.
According to a recent study by JP Morgan, the vast majority (88%) of businesses in the US have fewer than 20 employees, and nearly 40 percent of all companies have under $100k in annual revenue. So, if you think your small business is really small, turns out you’re right in the middle of the pack! So how do these businesses get their financing? There are three main avenues of financing for small businesses: debt financing, investment financing, and grants. We’ll explore all three here, but we want to focus on grants, since this method of raising capital for a business is not as well known as debt or investor financing.

Debt Financing for Small Business

Perhaps the clearest, though not the easiest, option to get the capital required for a small business is to go to your local bank and borrow it. Sounds easy, but it is much more complicated than that. Here are some things you must do and consider in order to get a business loan from a bank — any bank.
  • Do you have a relationship (existing accounts) with the bank already?
  • How is your credit score?
  • Have you created a complete, professional business plan?
  • Do you have financial projections for your business for at least 3, perhaps even 5 years?
  • How much cash will you personally be able to invest in the business?
  • Will your business support both the payback of the loan and your personal income?
These are just a few of the questions you’ll need to have answered before you walk into a bank seeking a loan to fund your business. Generally, banks are financially very conservative, meaning they are not known for taking big risks. According to the SBA, about 20% of small businesses fail in their first year, and about 50% of small businesses fail by their 5th year. With those statistics in mind, a bank will need to see evidence that (a) your business will be among the 30% that succeed beyond 5 years, and (b) even if it doesn’t, that you’ll pay back the loan.

Investor Financing for Small Business

Investors are known for taking more risks than banks; however, investors still want their money back, and with a high rate of return on their investment. That means that, not only should you be prepared to demonstrate everything you needed to demonstrate for a bank loan, but also that you’ll be able to deliver to your investors their desired rate of return. That return usually comes in some sort of “exit” event, meaning that you sell your business or take the business public. An IPO is not usually an option for a small business, though being acquired can be, if the business is in a market that is consolidating. The more important part of your effort to raise capital from investors will be your relationship with them. In a small business or startup investment, the investors are usually investing in the entrepreneur. That’s you. If they know you, your history, your competence and capabilities, then their confidence will already be high before they even see your business plan. Before you ask for investment dollars, make sure you build relationships with the investors.

Small Business Grants

Finally, small businesses can apply for grants to capitalize their operations. We covered the basics of loans and investor financing because there are many similarities to grants; however, there are a lot of differences, too. First, what’s similar among loans, investments, and grants?
  • You’ll need a solid, professional business plan
  • There will be a lengthy application process
  • A relationship with the granting organization will help a lot
  • There will be expectations for the results of the money from the granting organization
Those are the big similarities. Some of the differences include:
  • You don’t have to pay back a grant
  • The granting organization does not take an ownership interest in your business
  • There is no interest nor expected return on investment for a grant
These differences make it seem like a grant is “free money”, but do not assume that’s so. There are entire seminars on how to apply for and earn grant money. But, believe it or not, applying for a grant may actually be the easier part of the process. What’s the hardest part of getting a grant for your small business? Finding the right grant.

Government Grants vs. Private Grants

A quick search for “Small business grants” brings up the SBA’s grants page, which provides a solid introduction to exactly what the US Government is currently providing grants to accomplish. Add your state name in front of that search, and you’ll get more specific, local information about how to apply for grants in your community. Searching for Private small business grants generally leads you to organizations like Clark Howard or NerdWallet, which provide a wealth of information on all things financial. There’s no such thing as “free money”. At the very least, you will have to put in hours applying for a grant, which includes detailed business plans, forecasts, and other documentation. However, knowing that you have (at least) three options to raise capital for your small business operation can open your eyes to many more possibilities.
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