As I write this article, my office is closed to employees and clients. Our lawyers are fully set up to and are working from home, but closings are not able to close, and we are not able to go to court or do many of the things lawyers do to get ready for court, like taking depositions. My staff are on limited hours to do the limited work the lawyers can generate from home while almost everything is closed. Commercial and residential tenants are asking how much grace we can give them since they are not able to work as much, if at all, unless they are employed in “essential businesses”.
Just over a week ago, we were out to dinner, leaving larger than usual tips for wait staff we thought might soon be laid off, making sure our 2019 IRA contributions were sent, never imagining how fast and how much our world would change in a week. But this is our short-term reality, and how we deal with our businesses, clients, employees, tenants, lenders and others right now will have a substantial effect on how quickly and how well we recover from the current financial situation.
First, look at all your sources of income and revenue, and ask which are solid, and which are likely to decline for the time being. I have easily figured out that my revenue from court and closings will be non-existent for as long as we can’t do those things. Rent from tenants who are in essential businesses will come in, but other tenants are likely to falter.
Next, look at your expenses, and see what you can do to cut that side of the income and expense ledger. We are not going out, not entertaining, not travelling and not doing discretionary shopping, except online, so some of our expenses will be down. We are coming to Spring, so utility bills for our homes, businesses and rental properties will drop, and gas prices are so low and travel so restricted, all those numbers will drop. If we owe taxes, we get a break by not having to file for a few more months.
Can you pay any annual bills coming up over payments, defer any non- essential services, and lower expenses even more? Now is a good time to trim excess from your budget. Do you really need a land line at home, or a membership you can’t use? (Right now, Netflix, Pandora and the cable bill seem essential, but we might want to revisit those bills when we are able to go out again).
After you have your own income and expenses sorted out, do what you can to help others in your life. I realized on Thursday night that I would not be able to provide enough work for my support staff full time as of Monday, so I immediately researched unemployment benefits. I learned that the normal one week waiting period is eliminated for now, that they could apply online 24/7 and get about half of their pay right away. I gave them the link to apply, https://www.uc.pa.gov/unemployment-benefits/file/Pages/File%20an%20Initial%20Claim.aspx and also gave them guidance on how to calculate the weekly benefit rate they will receive, https://www.uc.pa.gov/unemployment-benefits/Am-I-Eligible/financial-charts/Pages/default.aspx
I also learned what the Partial Benefit Credit is, which allows them to make up to 30% of their weekly benefit rate without reduction in their unemployment compensation. I decided to make sure I could provide enough work for all of them to meet that 30% PBC, as a minimum. I explained that they can stay on unemployment while working more than the 30% PBC number, but their unemployment compensation will be reduced dollar for dollar by the amount they earn over that credit. I hope to be able to provide more work for them all to do, but I am prepared and have helped them to prepare if I can’t. If Congress can get its act together on a stimulus package and get each person over $1,000 this month, my staff will be able to get through this with less pain.
I am also sharing this information with residential tenants, friends and family who have been laid off due to the shutdown and suggest that you do the same. There is no shame in anyone who has been dealt a bad hand by the government and this pandemic asking for help from the government to keep a roof over their heads, food on their tables, and their utilities on. There is also no shame in employers who had steady work for their staff recognizing the great change we are dealing with and making tough choices to help their businesses to survive.
The next steps for landlords, after sharing this information with our tenants, are to determine who will be able to pay rent and who will not, come up with a plan for those who can’t, and communicate with our lenders about our reduced cash flow. Many commercial tenants will give additional security, like a UCC fixture filing on their equipment to guarantee payment of deferred rent. If the tenant’s business does not survive this crisis, you may get valuable fixtures and furniture, computers and other electronics this tenant will no longer need for the next commercial tenant.
We have security deposits. We can apply some of that money toward a shortage in what residential tenants will pay in April, and have the tenants replenish the security deposit over a few months after this pandemic ends. Make sure you do a clear, plain language addendum for the use and replenishment of the deposit. Other sources may help poorer tenants to pay part of their rent, but the stays on evictions by most courts and government take away the urgency for the tenants, at the same time many more tenants will be asking for those limited funds.
Once you do all you can on the income side, call your lenders, discuss what you have done, and the help you need from them. Some landlords I know have already reached out to institutional, private and even hard money lenders, and received deferment of a month or two of payments very easily. If these agreements don’t affect your credit, they are worth using to help manage your own cash flow.
After those discussions with lenders, if you are still projecting negative cash flow, the SBA has loan programs up to $2 million per company at 3.75% interest and up to 30 years to repay available for small businesses in our area, but ONLY IF YOU HAVE NO OTHER BUSINESS CREDIT AVAILABLE. [email protected]
The governor’s COVID-19 website also states that The Pennsylvania Industrial Development Authority (PIDA) offers low-interest loans and lines of credit for impacted companies, but the PIDA website does not yet have information for disaster loans, only development loans. The Pa Department of Community and Economic Development (DCED) https://dced.pa.gov/funding-programs/ is the website recommended by the Governor’s office to have the most current, updated information.
The state government affiliated business loan programs are likely to be dwarfed by the promised Federal aid to small businesses, but as I write this, Congress has yet to pass the $2/4/6 Trillion Dollar package while they fight over “pork” some politicians want to include in the bill. Whatever bill is finally passed, I will read it to see what money unrelated to helping consumers and businesses was thrown in to make a deal with politicians. It is sad to think Washington can’t get something this important done without adding unrelated baggage.
That is all for today. Stay apart, stay safe and stay healthy.