What to do when COVID-19 business relief isn’t enough

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Dear Business Banter,

Last year I received a PPP loan for $25,000 and an EIDL Advance of $10,000 for small business COVID relief. That money definitely helped keep my cafe doors open and I’m grateful for it, but it didn’t last too long. Now I’m getting my business back running full-time and can use some extra funds. I have decent credit so I’m thinking about getting a couple of business credit cards. Do you have any advice for me? Dion

Dear Dion,

When the pandemic hit the country in 2020, the federal government jumped into action, offering covid relief for small businesses. The assistance came in several forms, including Paycheck Protection Plan (PPP) loans and Economic Injury Disaster Loans (EIDL).

As long as you used the PPP for eligible expenses (payroll for your employees, mortgage interest, to cover the cafe’s rent or lease and utilities), that loan didn’t have to be repaid. Since you got the EIDL advance, it too is a grant with no repayment expectations. Therefore, although you seem to be running short on capital — which certainly is stressful — you’re in a good credit place. You’re not burdened with monthly loan payments, so a portion of your income isn’t already promised for other obligations, and your credit rating is in fine shape.

A business credit card or two can help you manage your expenses as you emerge from the pandemic. It may be slow-going at first, as some customers may still be reticent about going into a place of business. According to a 2021 Bankrate survey, nearly 24 percent of respondents cite being uncomfortable visiting a retailer, restaurant, grocery store or other business in person. For this reason, it will be important to get the right small business credit cards and use them effectively.

The idea is to leverage a credit card issuer’s deep pool of funds. Here’s how to do it:

Apply for a 0% APR, rewards-rich small business credit card

There are a large number of business credit cards on the market, but focus on one that allows you to borrow money without being charged any interest for a period of time and that offers a sign-up bonus and excellent rewards program.

For example, take a look at the Ink Business Unlimited® Credit Card. You will have 12 months of 0 percent intro APR on purchases (13.24 percent to 19.24 percent variable APR thereafter). If you pay off the debt before the regular rate goes into effect, you scored a free — and sizable — loan. You’ll also earn a whopping $750 bonus cash back after charging $7,500 in the first three months of opening the account. More, this card allows you to earn unlimited 1.5 percent cash back on all business purchases, so the rewards keep building. 

Plan your charges

Only you know your business and the expenses that go into it. First, think about what you need to buy that you can put on the card to meet the minimum spend. Do you need upgraded appliances to replace rickety tables and chairs, an interior and exterior paint job? Don’t lose out on the free money.

Then consider what you will be putting on the card on a regular basis so you can rack up the rewards every month. That can include marketing and advertising costs, accounting software, food and beverage inventory, and insurance premiums. It all adds up.

Make sure you’re comfortable with monthly minimum payments

During the 0 percent APR period, your balance from purchases won’t accrue interest, but you will still need to make at least the minimum payments, which is usually 2 percent of the balance. A $7,500 debt will result in a starting minimum payment of $150, while a $3,000 debt will be $60. Of course, the payment will fluctuate based on your charging and repaying activity.

What is vitally important: to ensure that you have enough money coming in to not just meet but exceed the smallest amount due. Credit card debt can spiral out of control fast, and you don’t want to be in a more stressful position than you are now. Aim to be debt-free before the introductory rate expires, then only charge what you can afford to repay in 30 days with revenue.

Reinvest the rewards

With a combination of the sign-up bonus and the rewards, you earn as you charge, business credit cards will act as a small but valuable additional profit source. For a retail business like yours, cash back cards are ideal because the rewards are offered as straight money, as opposed to points and miles on a travel credit card, which you may not need right now.

Play a cash back card right and the earnings can be significant. Let’s say you add $5,000 each month to a card offering 1.5 percent cash back. As long as you pay the bill in full, you’d earn $900 in a year. Surely that would cover something essential for the cafe!

The nice thing about using a credit card issuer’s capital is that you have control. Issuers are always looking for great new customers and the credit limits are often high — according to a 2020 The Face of Small Business study by Experian, the average credit limit for business owners is just over $56,000.

As a business owner, federal relief is wonderful when you can get it, but funding comes and goes. Stay abreast of the latest developments for COVID-19 relief options by visiting the Small Business Administration’s website since they are tasked with administering the program.

Written by
Erica Sandberg
Credit And Money Management Expert Contributor
Erica Sandberg is a credit and money management expert who began her career at Consumer Credit Counseling Service (CCCS). There, she helped individuals and families overcome their debt issues and developed budgets, then transitioned into the agency’s primary media spokesperson.
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