What to do if your small business is having trouble with rent

Over the past few weeks, most restaurants and physical stores have been doing only a fraction of their normal activity and in many cases no activity at all.

For almost half of small businesses, these wasted weeks could be enough to tip them into the red. Enough to make it impossible to pay rent, which for many is due today for the first time since the start of the COVID-19 epidemic in the United States

Even some big companies say they can’t afford rent. The Cheesecake Factory sent a letter to its owners in mid-March, informing them that he would not be paying rent because the virus “has inflicted a huge financial blow on our business.”

This will likely be more difficult for small business owners to do.

“Small businesses clearly don’t have the influence of these big chains,” said Jared Nicholson, director of the Community Business Clinic at Northeastern University School of Law. “While the owner will be ready to make a deal with a big customer, small businesses might not be able to get that kind of a break. “

If you are a SME boss who may not be able to afford rent this month or next month, what can you do?

Check your lease

“Take a look at your lease and see if there is anything to do with the suspension of rent obligations in an emergency, in a crisis or when the government is forcing your business to close,” said Arthur Kats, director of the Microenterprise Project at Volunteers of Legal Service in New York.

Your legal obligations and your options largely depend on the content of your lease. In most cases, Nicholson said, “the responses in the lease, particularly in these commercial leases, are unlikely to be very favorable to commercial tenants.”

That’s what Kats has found so far from the small business owners he advises in New York City. “The vast majority of our clients that we see do not automatically have the right to suspend their rent obligations during this crisis,” he said.

Likewise, most insurance policies do not offer much protection under the current circumstances.

“A big part of the policies that people would think of is business interruption insurance,” Nicholson said. “Often this requires physical damage to the property. Each policy is different, everyone must look at their policy. But on the face of it, many of these business interruption insurance policies won’t cover what’s going on right now.

It’s also worth calling your lawyer to help you decipher your lease, strategize how to negotiate with your landlord, and determine what assistance programs you may be eligible for.

If you can’t afford a lawyer, there are legal services that offer free consultations with small business owners, including small business clinics at many law schools and nonprofit organizations like the micro-enterprise project and Civil rights lawyers, which has a project that connects small businesses with lawyers willing to work on a voluntary basis.

With shelter-in-place orders in effect across much of the country, many restaurants and businesses are struggling to stay afloat. (Mandel Ngan / AFP via Getty Images)

Call your landlord

If you’ve gone through your lease and still have to pay rent, the next step is to try negotiating with your landlord.

“Call your landlord, say, ‘For obvious reasons, I’m going through tough times. I see a way where I can continue this lease, or I can continue this mortgage and support my business, and we can be long term partners, but I don’t have the money to pay, ”said Michael Roth, a managing partner at the consulting firm Next Street.

Nicholson in Northeastern said they were receiving reports from owners ready to negotiate. For many landlords, finding a solution is mutually beneficial if that means a tenant’s business survives until on-site accommodation orders are lifted.

If you come to an agreement with your landlord to suspend or defer rent, or pay less, “write that agreement,” Kats said. “Make sure both parties sign it, even if it’s by email, talk to a lawyer, if you have access, to make sure this agreement is in writing and binding when it’s all done.” “

It is also helpful to enter into a negotiation knowing the financial aid available to you.

“One really big item will be the federal stimulus fund, the loans available through the SBA,” Nicholson said. “The rent is specifically made an acceptable use of the loan proceeds. And in some circumstances, this expense could be forgiven.

“If you call your landlord and you’re interested in negotiating, I get the feeling that one of the first questions he’s going to ask is, do you have those stimulus funds? Is this something we could work with? “

Apply to the New Paycheque Protection Program

Starting Friday, small businesses will be able to apply for an emergency loan – much of which can be canceled – using the new Paycheque Protection Program.

the program, managed by the Small Business Administration and the Treasury Department, came out of the $ 2 trillion Coronavirus Aid, Relief and Economic Security Act (CARES).

Small businesses and non-profit organizations with less than 500 employees can apply for a loan of up to $ 10 million. Any portion of the loan that goes towards salary costs, rent, mortgage interest, or utilities during the first eight weeks will be forfeited, provided at least 75% has been used for payroll.

This is a “phenomenal, phenomenal product and program that small businesses will be able to access,” said Roth. But, he added, not everyone will be able to access the funds they need, at least not right away.

“My biggest piece of advice to any small business is to get your documents in order now,” said Roth. “Make sure you have everything. If you have a banker, call them as soon as you can. You won’t be able to reach them because they’re going to get 10,000 calls, but just keep dialing, make sure you are in close contact with them and go out of your way to be the first to apply, because it’s going to take a while to go through.

You can also request a SBA Economic Disaster Loan instead of or in addition to a PPP loan. Unlike PPP loans, however, EIDL is not eligible for remission. If you’ve ever applied for a disaster loan, you may be able to refinance it and convert it to a P3 loan to have it canceled.

Find local funding sources

At the city and state level, there are other sources of funding for small businesses. Philadelphia created a $ 60 million fund to offer loans to small businesses. Chicago has just launched a $ 100 million fund. Other cities and states are also making resources available.

“Unfortunately, there is no one stop shop where you can find this right now,” Roth said. “But Google is your best friend. The same goes for the small businesses in the neighborhood with whom you have worked in the past. Ask them where they get funds from. Find your local resources.

And like the paycheck protection program, he added, act quickly: “The demand… has been getting out of hand. “

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