Small Business Guide: Dealing with Economic Vagaries

In 2021, professional service firms helped small businesses recover from the COVID-19 pandemic by working with the US Small Business Administration in providing or helping gain access to Paycheck Protection Program and the Economic Injury Disaster loans.

As things return to normal, fear has been replaced by uncertainty as New Jersey’s small businesses confront inflation, interest rate increases, recession fears, and labor shortages.

Here is a glance at what a leading law firm, accounting firm, and financial institution are doing now, to support small businesses as they confront these new challenges.

“The immediate financial pressure faced by companies when the pandemic hit, and the related economic shutdown, has passed,” says John Cromie, head of the corporate and business law group at Connell Foley in Roseland. “Our clients have gotten through what to do with their businesses in the wake of COVID shutdowns, and the supply chain issues appear to be easing,”

Cromie explains that businesses have adapted and are finding new ways to do business. However, “Inflation has created a new set of issues that our clients have to deal with,” he said.

For example, on the construction side, Cromie notes that construction companies bid their jobs with pricing that did not reflect the potential for significant escalations and delays in terms of purchasing materials for the job. As a result, construction companies are now dealing with those issues and need help.

“On the real estate side, we are seeing companies that are in [industrial] spaces, whose leases or subleases are expiring, having a hard time finding space because there is so much demand for industrial flex space here in the Northern New Jersey marketplace, in the central part of the state, and along the 95 corridor,” Cromie says.

“We are helping them deal with those issues,” he explains.

On the M&A side, industry observers are seeing significant activity across multiple industries.

“Typically, we will represent companies that are on the sell side,” Cromie says. “A lot of companies are saying they got through COVID, but they don’t have a succession plan in place. There is a great opportunity here for businesses to sell, often to a private equity firm.”

Jordan Amin, tax partner and co-head of Iselin-based EisnerAmper’s private client services group, points out that the economy is entering a period of high interest rates, and high inflation.

“At the same time, we are still grappling with the issues that have persisted for the last year and a half, which includes labor shortages, and supply chain disruptions,” he says.

“We are working with our clients and trying to help them manage; not only on the short term, and the day-to-day, but how to think about the next 18 months to three years. We are helping them put their businesses in a position where they can be nimble and be able to pivot as needed,” Amin says.

“As we start to see the government stimulus drying up, it is important that we understand our clients and how their businesses operate, how they managed through the pandemic, and how they are coming out of the pandemic,” says Joseph Lomoriello, senior vice president, regional director, commercial lending, at Provident Bank.

Lomoriello adds that as stimulus money dries up, borrowers are turning to traditional sources of funding for their working capital through their existing banks’ lines of credit.

“We have a lot of customers on annual working capital lines coming up for renewal,” Lomoriello continues. “We are combing through their numbers to make sure we understand how they fared through the pandemic, and how those numbers compare to historical levels, looking back at performance in 2018 & 2019.”

Lomoriello explains that Provident understood that 2020 was going to be a bit of a disaster. With restrictions easing in 2021, the financial institution started to see a significant rebound, although not necessarily back to full operations.

“As these line renewals and existing loans come up for annual renewal or review, it is important that we look at interim numbers through 2022 and compare those, year-over-year, to 2021 to ensure we see businesses continuing the improvement seen in the second half of 2021,” Lomoriello says. “This gives us a good idea of whether a business has returned to where it was before, or if the pandemic has altered the business in any way. In some cases, clients are coming out stronger.”

Going forward, Lomoriello remains cautiously optimistic.

“While there is fear of a recession, I don’t know if I can pinpoint any one sector where we see that there is going to be a major collapse,” he says, adding: “Consumers are going to start pulling back on spending. That is when we get back to the fundamentals of lending and credit. We are lending to clients who have products and services that are needed and required.”

While acknowledging that there will be challenges down the road, Cromie said that he has a favorable forecast for the future.

“The US economy is incredibly resilient. I think there are certainly challenges we are facing right now. I lived through the significant inflation of the 1970s, and what it took to get that out of the system. I hope we do not get to that place. It took a couple of severe recessions to get the inflation situation under control,” he said.

Overall, New Jersey has a good, highly educated workforce, and good healthcare and school systems, according to Cromie, who comments, “I think the economy is still going to be attractive and continue to grow. It is a matter of making sure public policy and initiatives do not stifle that growth.”