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Economic Injury Disaster Loan and Emergency Advance Update

Dan Isard Dan Isard


In response to the Coronavirus (COVID-19) pandemic, small funeral home, cemetery and other business owners are eligible to apply for an Economic Injury Disaster Loan and Emergency Advance or Grant.

Summary

  • The SBA’s Economic Injury Disaster Loans offer up to $2 million to any business that qualifies.
  • These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.  This is in addition to the Payroll Protection Loan.
  • The interest rate is 3.75% (2.75% for non-profits). There are no prepayment penalties.
  • The repayment terms may be up to 30 years. Terms are determined on a case-by-case basis.
  • An Emergency advance of up to $10,000 may be granted. This Emergency Advance will not have to be repaid. However, any amount received will reduce the amount of forgiveness of any Payroll Protection Program (“PPP”) loan balance.
  • For questions, please contact the SBA disaster assistance customer service center at 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail disastercustomerservice@sba.gov.

Eligibility

  • Any small business with less than 500 employees.
  • Private non-profit or 501(c)(19) cemetery and veterans organizations affected by COVID-19.

Why Apply?

Capital Access – This pandemic will strain a small business’s financial capacity to make payroll, maintain inventory and respond to market fluctuations (both sudden drops and surges in demand). Businesses should prepare by exploring and testing their capital access options so they have what they need when they need it.  Economic injury does not mean that a business is on the brink of disaster. Having a decrease in working capital, or increased expenses, will qualify. Specific examples are:

  • Decreased Revenue due to Workforce Capacity – Covid-19 will have just as much impact on your workers as they do your clientele. It’s critical to ensure they can fulfill their duties while being protected.  As workers reduce hours and work from home businesses will rely on technology and alternative methods of serving clients.
  • Decreased Revenue due to Inventory and Supply Chain Shortfalls – It prudent to ensure you have adequate supplies of inventory and tools, such as Personal Protective Equipment for a sustained period.   You might need to diversify your sources for trade service and cremation in the event one provider cannot meet your needs in a timely basis.  Storage may become an issue as an increased number of bodies await interment or cremation.
  • Decreased Revenue due to Facility Remediation/Clean-up Costs – There is a need to enhance the protection of your families, the community and staff by increasing the frequency and intensity by which your business conducts cleaning of surfaces frequently touched by occupants and visitors. Check your maintenance contracts and supplies of cleaning materials to ensure they can meet increases in demand. 
  • The last thing you want a family to be infected while being within your building.  Offer masks, gloves and hand sanitizer.
  • Decreased Revenue due to Changing Market Demand – Shelter in Place and Social Distancing have established access controls or movement restrictions which has impeded at-need and pre- need families reaching your business.

Application Process:

In addition to general business information, you will need to provide the following:

  • The business’s gross revenues and cost of goods sold for the 12-months prior to January 31, 2020.
  • Evidence of an economic injury, or a likely economic injury. A loss of revenue as a result of the pandemic.
  • Funeral homes have a dramatic loss of revenue as families are not able to gather. Families are buying less merchandise, choosing cremation more frequently than burial, and not using the funeral home chapel or reception space, staff, or transportation vehicles.
  • We do not know what methods the government underwriters will accept or use on their own.  We can help them to understand how we think this need to determine their damages from COVID19.

To compute funeral business damages, we recommend:

  • Compute the difference between your Average Revenue/Call for January and February 2020 (or through the date of your state’s restriction on gatherings) -versus- March and April 2020.
  • Assuming the damages will be over a six-month period, compute your six months of call numbers. 
  • Multiply 4(b) times 4(c) as your Lost Revenue.
  • Determine the percentage of revenue that accounts for merchandise.  I am assuming this is about 15%.  The overhead of a funeral home is almost all a fixed cost.  Therefore, 85% of the Lost Revenue is amount is the amount to report as damage to your bottom line.

An Example:

A 200 call per year funeral home has an Average Revenue/Call before COVID of $7,000
After COVID it is $4,000
This is a $3,000 loss of Revenue/Call
For 6 months, (100 calls x$3,000) is about $300,000. This is your Lost Revenue
Deduct the cost of goods at 15% or $45,000.
The Net Damages are $255,000

Cemeteries have a different challenge brought about by COVID19. Cemeteries have different forms of income and a different cost structure. We do not know what methods the government underwriters will accept but we recommend a multiple step process:

Lost Profit from Advance Sales
Compute the average number of:
(1) Sales contracts on a typical month before COVID19.
(2) Sales contract on a typical month since COVID19
Subtract (1) from (2) This is your Lost Advance Sales Contracts

Compute the average sale dollar amount
(1) Before COVID19
(2) After COVID19
Subtract (2) from (1) This is your Lost Advance Sales Contract Revenue

  • Multiply the Lost Advance Sales Contract Revenue by the Lost Advance Sales Contracts. This result is the Lost Advance Sales Contracts Revenue
  • Estimate your average Commission and Cost of Goods Sold per Contract
  • Subtract the Commission and Cost of Goods Sold per Contract from the Lost Advance Sales Contract damages. This result is the Lost Advance Sales Profit Damages.
  • Do the exact same steps outlined for your At Need Contracts. This will result in the Lost At Need Sales Profit damages.
  • To compute total damages: Add the Lost Advance Sales Profit damages to the Lost At Need Sales Profit damages. This is the total damages estimated for the six-month period.

An Example:

  1. Advance Sales Damages. A cemetery with 200 advance sales contracts a year is 17 contracts a month. Since COVID you have written about 7 advance sales contracts a month or a loss of 10 advance sales contracts. For the estimated 6 months that is 60 lost contracts.
    Before COVID the average advance sales contract was $5,000. Since COVID the average advance sales contract is $4,000. That is a $1,000 estimated loss per advance sales contract. Over 60 lost contracts that is a loss of $60,000. This is your Lost Advance Sales Contracts Revenue.
    Your average commission is 25% and your average COGS is about 20%. Therefore, securing each contract costs you 45%. Therefore, each contract results in a profit of 55%.
    Your Lost Advance Sales Profit Damages is 55% of $60,000 or Lost Advance Sales Profit Damages is $35,000.
  2. At Need Sales Damages. A cemetery with 300 at need sales contracts a year is about 25 contracts a month. Since COVID you have written 20 at need sales contracts a month or a loss of 5 advance sales contracts. For the estimated 6 months that is 30 lost contracts.
    Before COVID the average at need sales contract was $5,000. Since COVID the average advance sales contract is $4,000. That is a $1,000 estimated loss per advance sales contract. Over 30 lost contracts that is a loss of $30,000. This is your Lost At Need Sales Contracts Revenue.
    Your average commission is 10% and your average COGS is about 20%. Therefore, securing each at need contract costs you 30%. Therefore, each contract results in a profit of 70%.
    Your Lost At Need Sales Profit Damages is 70% of $30,000 or Lost At Need Sales Profit Damages is $21,000.
  3. Conclusion. Since overhead doesn’t change, your total Damages that the EIDL should help sustain is $56,000 (Advance Sales Profit Damages plus At Need Sales Profit Damages).

To apply for a COVID-19 Economic Injury Disaster Loan and loan advance, click here.

As we are learning to navigate through these times of uncertainty and adjusting to our new normal, we here are at The Foresight Companies want to be your go-to source for all topics related to your business operations.

Please visit our COVID-19 new Business Operations Resource Center frequently as we continue to update as changes are occurring.

If you have any questions or concerns please do not hesitate to pick up the phone and give one of us a call at 1-800-426-0165.  

*Please note that as information is updated and modified, terms and conditions are subject to change.

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