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Updated: April 25, 2024

Ways small businesses can improve cash flow during COVID-19

Published By:

Erin Ellison

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Many financial planners say that small business owners should have at least a month or two — if not six months — of cash on hand in case of an emergency. Now, small business owners across the country are facing an unprecedented cash flow crunch. To help you find ways to improve cash flow, we’ve outlined some actionable ideas for keeping the funds flowing until things get back to normal.


What do we mean by liquidity?

Liquidity (or liquid assets) refers to the things you own that can quickly be turned into cash to cover the costs of your business. A lot of the value of many businesses is tied up in resources (like equipment, real estate, and your brand or know-how) that takes time to convert — or simply can’t be.

So, the big question is how you can improve your cash flow with the resources that are readily available.

How to improve liquidity (generally)

We’re going to offer some specific recommendations for getting your cash flow right, but nobody knows your business better than you, so there are likely other ways to approach the issue aside from what we outline below. To think about this problem at a high level, here are four ways to add cash to your coffers:

  1. Borrow cash or extend a line of credit from a bank, the SBA, friends, or other colleagues.
  2. Sell something of value, which could be anything from equipment to a partial ownership in your business.
  3. Reduce or delay your costs by spending less on rent, your payroll, insurance, supplies, etc. This approach could also mean renegotiating debts or other obligations.
  4. Improve sales by marketing your business more effectively.

Now that you have the big picture, here are some steps that could work for many small businesses. We highly recommend talking to an accountant, lawyer or financial advisor to understand all the implications of different approaches.

Renegotiate contracts, leases, or other agreements

You’re not the only small business that’s experiencing liquidity issues amid the COVID-19 pandemic. Your suppliers, vendors, lenders and landlords know operations are being disrupted, and there’s a good chance they’ll work with you to help keep your obligations in good standing. The key: Be proactive and transparent. If you wait until you’re missing payments or defaulting, people will be less likely to work with you.


Negotiate with lenders: If you have a financial obligation with a lender — like a small business line of credit, for instance — you may be able to defer payments or even get a rate reduction. Communication is key, so it’s best to contact your lender directly as soon as possible to explain your current financial situation and work out a plan while you still have flexibility.


Contact credit card companies: Many credit card companies are willing to help. In fact, a number of financial institutions around the country are providing cardholders with temporary payment relief assistance, including waiving late fees and lower interest charges. Again, it is important to be proactive and contact them as soon as possible to keep your credit in good standing.


Covering your rent: If you’re worried that you won’t be able to make your commercial rent, it’s worth doing some research to see if your city or state has enacted new rules and regulations related to the pandemic. For example, New York State has issued a 90-day moratorium on any commercial (and residential) evictions, and San Francisco has issued a moratorium on commercial evictions for small businesses that are unable to pay rent as a result of coronavirus impacts.


If your city or state has no such legislation in place, reach out to your landlord directly to try and work out a deal.  And keep in mind that landlords are hurting, too. If they lose you, it’s unlikely that many will be able to find new tenants in the short term.


Communicate with vendors and suppliers: It’s always important to maintain good relationships with your vendors and suppliers — but even more so now. So, if you think you might miss some payments, contact them as soon as possible to explain your situation. You may be able to negotiate lower payments or longer terms for a period of time.

Switch to pay-as-you-go workers’ comp

You can free up some cash by taking advantage of pay-as-you-go workers’ comp.


Workers’ comp is a typically required insurance program that protects your business if an employee gets sick or is hurt on the job. Sick or hurt employees receive a certain portion of their wages while they are away from work to cover expenses like medical bills.


Here’s the challenge for employers: Coming up with a big, upfront lump sum for workers’ comp premiums can take a toll on the cash flow of your business — even in the best of economic times.


Enter pay-as-you-go workers’ comp.


Pay-as-you-go workers’ comp is an easy and cost-effective way for you to cover your employees because it allows you to make premium payments each time you run payroll — not in one huge payment to keep track of annually. Plus, your policy is automatically updated when you add or lay off an employee.


And if you need cash during the COVID-19 crisis, it’s likely any lump sum payments you’ve made for a traditional policy will be partially refunded when you switch to pay-as-you-go worker’s compensation.


Consider some other benefits of pay-as-you-go workers’ compensation:

  • No premium due up front
  • Premiums are calculated automatically
  • Saves you time and money
  • Minimizes costly audits
  • Your payroll service provider streamlines everything so you can keep your back office organized

Take advantage of COVID-specific government programs

Through the Paycheck Protection Program, created with the CARES Act, you may be able to receive a forgivable loan. There are also other tax credits and rebates available under the FFCRA.


Find more details in our in-depth COVID-19 Resource Center for small businesses.


Here are basic details about the program entailed. We expect it (or something similar) to go back online, but no timeframe is set:

Paycheck Protection Program (PPP)

Through the Paycheck Protection Program, created with the recent signing of the CARES Act, you may be able to receive a forgivable loan of up to $10 million.


The loans, which are being administered at the local level by a network of banks and credit unions, are designed to help small businesses meet payroll and day-to-day operating expenses. No collateral or personal guarantees are required, and neither the government nor lenders will charge small businesses any fees.


More specifically, PPP can provide you with funds to pay up to eight weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages (not prepayment or principal payments), rent, and utilities like electricity, gas, water, transportation, phone and internet access. At least 75 percent of the forgiven amount must be used for payroll.


Forgiveness is based on you maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.


So, who can apply for a PPP loan? Small businesses with 500 or fewer employees — including self-employed individuals, sole proprietorships, and independent contractors — are eligible. Even businesses with more than 500 employees are eligible in certain industries.


For more information, check out the Department of the Treasury’s fact sheet, or visit the Small Business Administration’s site for a full run down.

Bridge loans for small businesses

If one of the new financing options isn’t available to you, you may also want to consider a bridge loan. As the name suggests, these loans “bridge” the gap between an immediate need for cash and a more permanent solution like a long-term loan or future revenue.


They are a versatile cash flow solution that can be used to cover costs like rent, utilities, wages, etc. Plus, they are usually quicker to secure compared with a traditional long-term loan. In fact, in some instances, you can have cash in your bank account within 24 hours. That’s great when you’re facing a liquidity crunch.


When it comes to bridge loans, it is important to keep in mind that they are meant to provide you quick and immediate access to funds. They have a short repayment period and tend to have higher interest rates compared with long-term loans.


If you currently have a business relationship with an SBA Express Lender, you may want to consider an SBA Express Bridge Loan (EBL), which can offer your business a liquidity lifeline. Under the EBL program, small businesses who currently have a business relationship with an SBA Express Lender can quickly access up to $25,000 to help them overcome the temporary loss of revenue.


Originally launched in 2017, these expedited bridge loans are available to small businesses located in communities impacted by Presidentially-declared disasters. These loans are to be used by small businesses for disaster-related purposes while they apply for and await long-term financing.

As of March 25, 2020, program eligibility has been expanded to include small businesses adversely impacted by COVID-19. Usually, EBLs can only be distributed for up to six months after the date of a Presidential Disaster Declaration. But for COVID-19, EBLs can be approved through March 13, 2021.

Who’s eligible for a bridge loan?

Small businesses located in any state as well as the District of Columbia adversely impacted by the pandemic can apply. The SBA also mandates that applicants were operational when the declared disaster began and must meet all other 7(a) loan eligibility requirements.


So, if you have an urgent need for cash while waiting for a decision and disbursement of an SBA Economic Injury Disaster Loan (EIDL), an EBL might be the answer.



EIDL emergency advance

Another option is an EIDL advance of up to $10,000. This advance was created in response to the COVID-19 pandemic to help provide economic relief to small businesses — across all US states, Washington D.C., and territories — experiencing a temporary loss of revenue.


The advance funds will be made available within days of a successful application, and will not have to be repaid.


Again, this is available for any small business with fewer than 500 employees —including sole proprietorships, independent contractors and the self-employed — affected by COVID-19. In some instances, businesses in certain industries that have more than 500 employees may be eligible.

Other steps small businesses can take

Finally, you can improve cash flow by increasing the amount of business you do, by selling items of value, or by reducing costs. It’s difficult to give specific advice because there are so many potential options and tradeoffs, but we recommend getting a professional opinion before taking the plunge on measures that could fundamentally alter the way you work or make it harder to get back up to speed. Talk to your legal or business advisors or your accountant.


These are uncertain times, but there is help out there for your business. Being proactive, keeping the lines of communication open, and doing your research can help you find ways to maintain liquidity and keep your business up and running.


For more information about how your small business can navigate payroll, HR, and benefits through COVID-19, please visit our Resource Center.


This article is for informational purposes only and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors for formal consultation.

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Erin Ellison is the former Content Marketing Manager for OnPay. She has more than 15 years of writing experience, is a former small business owner, and has managed payroll, scheduling, and HR for more than 75 employees. She lives and works in Atlanta.