However, this program was rolled out quickly. Given that, there’s been a fair amount of confusion, specifically around forgiveness provisions. The goal of this post is to clear up some of those details and talk about other options you might have available as a business owner.

Before moving forward, if you have any doubts as to how the rules apply or what option might be right for you, we encourage you to speak with a financial advisor or tax professional.

We’ll get into the meat and potatoes soon, but for now, let’s take a look at what the Paycheck Protection Program is.

Paycheck Protection Program

The Paycheck Protection Program was put in place to help businesses with 500 or fewer employees to pay for much of their payroll costs. It was further intended to be used toward mortgage interest, rent and utilities.

The program allowed businesses to apply for a loan representing 2.5 times their payroll costs for 8 weeks up to a maximum of 24 weeks depending on when your loan was issued, up to a maximum of $10 million. The 8-week or 24-week clock starts when the loan is disbursed. Companies that have differing payroll structures can select an alternative covered period so that it lines up with the first pay cycle after they get the loan. This gives flexibility for businesses that pay biweekly, monthly or on the 1^st and the 15^th, for instance. It’s important to note that this alternative covered period applies to payment of wages, salary, tips and commissions. All other costs paid for under the loan only cover the 8-week or 24-week period after the loan is disbursed.

For the purposes of the loan program, payroll includes the following:

• Wages, salaries, tips and commissions (up to $100,000 per employee)
• Costs of time-off benefits, including vacation, as well as parental, family, medical and sick leave. One note here: Don’t include leave provided under the Families First Coronavirus Response Act. You can get a separate tax credit for that leave.
• Retirement and health care benefits not including any portion paid by the employee
• Separation or dismissal pay allowances
• Any state and local taxes on compensation paid by the employer

As mentioned above, the real carrot here is loan forgiveness, so let’s touch on that next.

Paycheck Protection Program Loan Forgiveness

The last thing you want to do when there’s no money, or significantly less money, coming in is take on new debt. However, the federal government wanted to keep people on payrolls and off unemployment. In order to encourage business owners to take advantage of the program,  the paycheck protection program loan forgiveness is being made available as long as you meet certain program conditions. These conditions include the following:

• Forgiveness is reduced if you cut salaries or wages by more than 25% for any employee making less than $100,000 in 2019.
• You can’t reduce your head count of full-time equivalent employees. The calculation takes into account both full and part-time workers. If you cut staff between February 15 and April 26, you have until December 31, 2020 to hire them back.
• If you make a good-faith effort to hire someone back and they turn you down, document it. If that’s the case, it won’t impact your forgiveness. Just make sure to document.
• At least 60% of the funds from the program have to be used on payroll costs. To the extent that you don’t use 60% of the loan for payroll, forgiveness can be reduced.
• If you’re going to use the remaining 40% to cover mortgage interest, rent or utility payments, the debt obligations or agreements must have been in place before February 15, 2020.

For the purposes of calculating your full-time employee equivalency, employers have a couple of options in terms of selecting the reference time frame. You can choose any of the following:

• The average number of FTE between February 15 and June 30, 2019
• The average number of FTE between January 1 and February 29, 2020
• For seasonal employers only, you have the additional option of selecting any 12-week period between May 1 and September 15, 2019

The CARES Act also excludes Paycheck Protection Program forgiveness from being included in gross income for the purposes of federal tax liability. However, the IRS also issued a notice saying that expenses that would ordinarily be deductible for the business owner under federal tax law aren’t deductible if they were paid out of PPP loan funds that were later forgiven. The idea is to prevent double dipping, but it’s worth noting that it may have an impact on whether or not the loan makes sense for you, so please talk to your tax preparer or financial advisor.

Finally, the forgiveness may or may not be taxable at the local or state level. States usually follow the lead of the IRS, but they don’t have to. It’s a good idea to contact a tax professional or business advisor.

Your forgiveness could also be reduced if you got the $10,000 Economic Injury Disaster Loan (EIDL) advance because it didn’t have to be repaid regardless of whether you actually got the loan. Due to it essentially functioning as a grant in that regard, the government is treating that money as already having been paid to you.

In order to document things for the purposes of forgiveness evidence, the SBA requires that you keep bank statements or payroll service documents showing compensation paid to employees as well as payroll and unemployment insurance tax filings, and any payment receipts, canceled checks or account statements for employer contributions for retirement or healthcare. These will be used both to determine payroll amounts and your number of hires. Work with your lender to determine exactly what information is needed and your eligibility for forgiveness.

What Happens If I Don’t Qualify For Paycheck Protection Program Loan Forgiveness?

To the extent that you have to pay all or a portion of the loan back because it didn’t qualify for forgiveness, you have to pay back that portion of the balance. The repayment terms are as follows:

• Payments are deferred for 6 months depending on if you received funds before or after June 5, 2020 and if you have elected the funds for the 8-week or 24-week period
• There’s a 1% interest rate.

For Paycheck Program Program loans made before June 5, 2020, the term is 2 years; however, borrowers and lenders may mutually agree to extend the term of such loans to 5 years. For loans made on or after June 5, 2020 the term is 5 years.

Whether you qualify for a Paycheck Protection Program loan, there are other options available to you in terms of small-business funding during this time.

Economic Injury Disaster Loans

The EIDL can be used as a stand-alone option or in combination with the PPP. This loan provides up to $2 million in assistance for both small businesses and nonprofit companies. The interest rate is 3.75% for a for-profit loan and 2.75% for nonprofits with a term of up to 30 years. The funds can be used for payroll, outstanding debt obligations, mortgages and rent as well as materials.

If you get approved for both the Paycheck Protection Program and the EIDL, there are circumstances in which you may have to refinance your loan into a PPP loan if it was used for payroll costs. Your lender can let you know what you need to know.

The nice thing about this particular program is that it offers a little bit more flexibility as to what you can do with the funding than the PPP. This could help you retool your business for a post-COVID-19 environment. For example, you could use the money to get online sales up and running.

While new applications for EIDL loans are currently being accepted, no new applications for the EIDL Advances will be accepted.

EIDL Forgiveness

Unlike the PPP loans, there’s no forgiveness provision for Economic Injury Disaster Loans, so you’ll be paying them back. However, you won’t be doing so right away because there is currently a 12-month payment deferral in place. Additionally, remember that the interest rates are low and there are more options for how you use this funding in comparison with the PPP.

We know you’re struggling right now, but there are steps you can take to ensure you can survive and thrive once the nation moves past this. There are several free resources available to assist small businesses impacted by COVID-19.

For personalized advice based on your situation, we again recommend speaking with your financial advisor and tax professional.

The post Guide To The PPP Loan Forgiveness appeared first on Loan Solutions OU.

One question on many business owners’ minds is “Will it be harder for me to get small-business financing now that we’re in the thick of the COVID-19 situation?” And even still, you may be wondering about what the small-business financing environment will look like after things settle down with COVID-19.

There are some aspects to the answer which may seem like common sense, and others which may surprise you. Continue reading as we explore the future of small-business financing after COVID-19.

[More: COVID-19 Relief Financing Options]

Will It Be Harder To Secure Business Financing?

The changes COVID-19 has caused in the financial world have trickled down to small-business financing. Lenders are scrutinizing more heavily due to credit risk because of the increased volatility of the market.

It’s a difficult time because so many businesses desperately need funding, but lenders have to be careful with their lending practices for their own sake. There may be many deserving businesses on paper (based on past guidelines), but lenders must take into account an accurate risk assessment with each small-business financing situation. And that risk assessment is likely going to be a lot more stringent than it was before.

Some businesses, on the other hand, may have a little more luck receiving financing than others. That’s because certain industries have been more negatively affected by COVID-19 than others.

[More: How Can A Small Business Survive The Coronavirus?]

Here’s What Matters Most

If you’re looking to receive small-business financing, here are the factors that come into play:

• Your Time In Business

Funders are looking to see longer track records when small businesses ask for financing and relief. This could mean one thing to one funder, and another thing to another. Funders that previously required a year in business may be looking for 18 months, or even 2 years, for example.

• Your Industry

Certain industries are more likely to receive funding than others right now due to uncertainties. While your industry may have easily attained funding just a short 6 months ago, you may have more challenges now. Funders have to evaluate their own risk when deciding to finance a small business.

• Your Cash Flow

Funding companies are also looking to see sufficient cash flow to successfully service debt. Some funders are even asking for real-time access to your bank records to confirm that your business can make timely payments. And many funders are requiring more than they used to; month-to-date bank statements are becoming more of a norm.

• Your Personal And Business Credit History

Knowing your personal and business credit score is more important than ever, but your ability to influence it for the better can make a world of difference if you’re applying for small-business financing. To learn more, please see our article about protecting your credit score during COVID-19.

[More: How To Generate Income Online During COVID-19]

Sectors With Highest And Lowest Risk

Experian™ has done some data analysis on industries that are at more of an advantage and others that are likely to have some adversity when it comes to small-business financing. Their COVID-19 US Business Risk Index has shed some light on the “new normal” of small-business financing. Their five most “risky” industries are:

1. Arts, entertainment and recreation
2. Administrative/support/waste management
3. Information
4. Accommodation and food services
5. Retail trade

Arts and entertainment is the high-risk front-runner as the industry that makes most of its revenue from large crowds – these concerts, sporting events and other large gatherings of people are considered risky environments for the spread of COVID-19.

According to Experian’s index, the following five sectors have the lowest risk:

1. Educational services
2. Public administration
3. Healthcare and social assistance
4. Agriculture, forestry, fishing and hunting
5. Utilities

Educational services and healthcare will always be needed, and current technology allows for unique opportunities for teachers to connect with students and doctors with patients.

How can you secure small business financing?

Securing small business financing during these unfortunate times is actually much harder than it was five months ago. While it is still possible, the number of funding companies available to fund has actually decreased dramatically as COVID-19 has obligated them to shut down operations. Some financial institutions are slowly making the comeback in preparing to make funding available again. Private financing loans are becoming available to current clients and in some cases new clients as well. However, this time around and for a few months until the economy starts to rise again, requirements will be more strict and the loan amounts will surely be less as less capital is available. This does not mean that this is situation for all the financial institutions, some are fully equipped to begin funding as soon as some stated open back up.

While there are some states that opened and now are forced to quarantine once again due to an increase in cases, there are other states that are doing particularly well during this time. If you live in one of those states that is open for business, chances are that funding will be available much quicker than other states, however, this is not guaranteed.

In the meantime, as mentioned above, there are a few things you can do to make sure that if and when funding is available, you can secure a loan. One of those things is keeping up with your credit score as this is a huge requirement for most financial institutions. Also, plan ahead and check out your funders website for all the requirements to make sure you have everything you need for applying, this will make the application much easier and faster.

Steps You Can Take For Success

As we’ve said, bettering your credit score could prove to be very useful right now. You can use Experian, Equifax®, FICO® or Dun & Bradstreet to monitor your credit and raise your credit scores. Start by addressing any incorrect information on your reports. As many as 20% of Americans suffer from lower scores due to incorrect information, and you may be among them.

Take steps to show that your small business is worth investing in and financing. Keep careful records of your business expenses and button up any liabilities. Show how you’re taking action toward COVID-19 compliance. Stay up to date on the current CDC and government recommendations. Certain industries will be more directly affected by their guidelines. Adhere to them as firmly as you can.

[More: 8 FREE Resources For Businesses Facing The Coronavirus

The Future Of Small-Business Financing

The short-term future has proven to make it more difficult to get small-business financing, especially if your industry is considered risky or you don’t have as much of a track record. Funding companies generally have had to be more conservative with funding practices because there is so much uncertainty.

Things you could focus on are your credit score, building a track record of financial success and applying for small-business financing. Here are our credit guidelines which could help you long-term.

If you have questions, we’re here to help! Contact us here.

[More: In The Business Of Expecting The Unexpected]

The post Securing Small Business Financing After COVID-19 appeared first on Loan Solutions OU.

The ability to have their loans forgiven hinges on keeping staff employed and paid, incentivizing these businesses to keep people on their payroll and off unemployment.

To meet requirements for loan forgiveness, you have to be able to prove you’ve done these things, which means that tracking your business expenses during this period is of the utmost importance.

Let’s take a look at some of the information you’ll need to provide to qualify for PPP loan forgiveness, and some strategies small business owners can utilize to effectively track their spending.

The Basics Of Paycheck Protection Program Loan Forgiveness

To help small businesses pay their employees during the COVID-19 crisis, the PPP is providing forgivable loans to small businesses that employ 500 or fewer employees; however, other businesses may be eligible and you should review the PPP eligibility requirements. This includes self-employed individuals and independent contractors.

The deadline to apply for this program was June 30, 2020.

While the loan can be used for a variety of costs, borrowers need to meet certain criteria when it comes to the way they spend the funds to be eligible for forgiveness.

These are the main criteria to qualify for PPP loan forgiveness:

• Loan funds must be used to cover payroll costs, mortgage interest, rent and utilities.
• At least 60% of the loan funds must go towards payroll costs; otherwise, forgiveness amount may be reduced.
• Borrowers may not reduce their full-time employee headcount (this is calculated as full-time equivalency, or FTE, which includes part-time workers).
• Borrowers may not decrease salaries or wages by more than 25% for any employee making less than $100,000 annually.

For the purposes of this program, payroll costs include salary, wages, commissions or tips (up to $100,000 per employee); healthcare, time off and retirement benefits, separation or dismissal pay allowances; any state or local taxes on compensation.

If you cut staff, you may still receive full loan forgiveness if you hire them back. If you make a good=faith offer to rehire that is declined and are unable to find a similarly qualified employee, you may also still be eligible for loan forgiveness. Previously, this rehiring or documentation of your inability to do so had to be done by June 30, but the deadline has now been extended to December 31, 2020.

Changes To PPP Guidelines

If you’re familiar with the original PPP guidelines, you may have noticed here that the rules of the PPP have changed slightly since the program was first rolled out. The Paycheck Protection Program Flexibility Act of 2020, signed into law on June 5, 2020, made the requirements for loan forgiveness less stringent.

If you haven’t yet familiarized yourself with the new rules, be sure to read up on what’s changed to find out if any of the changes affect your eligibility.

One of the major changes made was the portion of the loan funds that were required to be spent on payroll. Prior to the PPP Flexibility Act, borrowers had to spend at least 75% of the loan funds on payroll but that has now been reduced to 60%.

Another big change: the period during which borrowers must spend the funds has been extended. The original PPP guidelines required that all the loan funds be spent within eight weeks of receiving them. PPPFA extends this period to 24 weeks or until December 31, 2020, whichever comes first.

However, those who received their loan funds before June 5 may choose to stick with their initial 8-week period.

If some or all of your loan isn’t eligible for forgiveness, the loan term has been extended from 2 to 5 years.

Because of the popularity of this program, Congress also had to allocate additional funds for PPP, as the initial $350 billion ran out in just a couple of weeks.

How To Get PPP Loan Forgiveness

You’ve met the requirements for forgiveness eligibility; how exactly do you go about getting your PPP loan forgiven?

First, you’ll need to fill out an application for forgiveness.

If you are self-employed or you didn’t reduce the number of employees you have and didn’t decrease their salaries or wages by more than 25%, you may be eligible to use the simplified, 3508 EZ form. The SBA has more detailed instructions on who is able to use this form and how to fill it out.

If you aren’t able to use the 3508 EZ form, you’ll use the standard loan forgiveness application. Detailed instructions on how to fill out this application can be found on the SBA website.

The application will require you to fill out the basics of your business and your PPP loan: your business address, the number of people you employ, your loan number and amount, and all the details on how much you spent and what you spent it on.

What You Need To Include With Your Forgiveness Application

In addition to submitting the Loan Forgiveness Application – including the Loan Forgiveness Calculation form and the Schedule A form – you’ll need to provide some documentation backing up the information you reported in your application.

To verify your payroll information, you should include:

• Bank account statements or third-party payroll service provider reports showing how much you paid your employees during the period covered by the loan.
• Tax forms that have been or will be reported for the period covered by the loan, including payroll tax filings and quarterly business and individual employee wage reporting and unemployment insurance tax filings.

To verify your number of FTE employees, you should include documentation that verifies:

• The average number of FTE employees on your payroll employed between February 15, 2019 – June 30, 2019.
• The average number of FTE employees on your payroll employed between January 1, 2020 – February 29, 2020. Seasonal employers may elect to use a more representative period of time and should provide documentation showing the number of FTE employees employed during any consecutive 12-week period between May 1, 2019 – September 15, 2019.

The documentation you use to verify your FTE employees may be the same ones used to verify payroll information.

To verify payments you made toward eligible non-payroll expenses, you should include documentation that verifies:

• Your business mortgage interest payments.
• Your business rent or lease payments.
• Your business utility payments.

Once you’ve completed your application, you’ll send it (and any required documentation) to your lender or loan servicer.

Requirements For Tracking PPP Spending

Though you won’t have to submit it with your application, you will need to hold onto your Schedule A Worksheet and any documentation you used to complete this worksheet.

Other than asking that you keep records of the documents used to complete your forgiveness application, the SBA doesn’t have any specific guidance or rules for how business owners should go about keeping track of their PPP expenses. That decision is left up to you, and likely will depend on what kind of bookkeeping programs you already utilize.

How To Best Track PPP Spending

Now that you know what documentation you’ll be required to provide to ensure your PPP loan is forgiven, you just need to figure out how best to keep track of the ways in which you utilize your loan funds.

First, it’s recommended that you keep your PPP funds in a separate bank account, so you can easily keep track of where that money is going and how much you have.

You should also be aware of how much money you have to work with for both payroll costs and non-payroll costs. At this time, only 40% of the forgiven amount can be for qualifying non-payroll expenses. That means at least 60% of your funds should be used towards payroll costs if you want to receive full loan forgiveness.

It will likely be helpful to create a plan for exactly how you’ll allocate your loan funds, and to check in regularly to make sure you’re still on track to receive forgiveness.

Obviously, you’ll need to keep tabs on how much you’re paying your employees and what other expenses you’re putting your loan funds toward. If you utilize accounting software or a payroll provider to do bookkeeping for your business, this should be fairly simple to do.

When it comes time to apply for forgiveness, having all the relevant documents, bank statements, payroll statements, tax filings, receipts and other official records will go a long way in making the process of loan forgiveness a headache-free one.

If I Qualify For Forgiveness, Will I Still Have To Pay Back Some Of The Loan?

It’s possible to be eligible only for partial PPP loan forgiveness. If this is the case, only some of your loan will be forgiven, and the rest will need to be repaid.

If you don’t qualify for full forgiveness, it’s likely because you didn’t completely meet the guidelines for full forgiveness; perhaps you spent more than 40% of the funds on non-payroll expenses or you used the money for eligible but non-forgivable costs.

For any part of your loan that isn’t forgiven, you’ll have to pay it back according to its terms. For loans issued before June 5, 2020, the loan term is two years. For loans issued after June 5, the loan term is 5 years. Either way, you’ll pay the amount you owe back at an interest rate of 1%.

Where To Find More Information On The PPP

To learn more about all the loan options available to you during this time, check out our FAQ page on COVID-19 SBA disaster loans.

For official information on the PPP, head to SBA.gov. You can also check out our complete guide to the PPP to help answer any questions you may have. If you want some general tips on keeping your business afloat during COVID-19 or information on free resources available to small businesses, we’ve got you covered there, too.

Ready to look into what your options are for COVID-19 relief? Check out Loan Solutions OU’s COVID-19 relief financing options.

The post How To Track Your Business Expenses For PPP Loan Forgiveness appeared first on Loan Solutions OU.

With that in mind, you may want to turn to private financing loans or other financing option in order to make sure you can keep up your business operations and even set yourself up for the future. You actually have several options, which we’ll discuss in this blog post.

What’s A Private Business Loan?

A private small business loan is any loan not given by a traditional bank or backed by the government through the Small Business Administration (SBA).

The key differentiating factor here is that in addition to the things you can typically use a small business loan for such as working capital, payroll and equipment financing, you have the opportunity to explore a variety of loan options that are more tailored to what you might be trying to do as a business owner.

Types Of Small Business Loans

The rest of this post is going to cover the types of loans you can get as well as the assistance you might be able to take advantage of during COVID-19.

Before we get into the different types of private financing loans, let’s go over what a more traditional small business loan looks like so that you can have some context. It’s also important to note that this type of loan may be offered by private lenders as well, despite being traditionally offered by business or the government.

Term Small Business Loan

A traditional small business loan can be used for things like working capital, equipment purchase or even buying buildings. It’s a long-term loan with a low rate. These are often funded by banks or the SBA.

These longer-term loans are good for long-term business projects, but not everything is that. They also take longer to qualify for. There tends to be lots of documentation, and you need really good credit. Not everyone fits this category.

Private lenders may do these loans and you may have options for shorter terms. Private financing loans may also have slightly looser credit standards in exchange for potentially a higher cost of the capital, although they still tend to be affordable. In some cases, these loans can be approved faster than a loan through a traditional bank or the SBA. Depending on the particulars of the loan, there may also be more flexibility as to what you can fund with the loan.

Line Of Credit

The second private financing loan option, a line of credit for your business, is analogous to a personal credit card you might have or even a home equity line of credit and works largely the same way. Essentially, you can access a pool of money that you’re approved for, but you only have to pay interest on what you actually use.

When you do withdraw money, lines of credit are often paid back on a daily,weekly or monthly basis. The line of credit offers a lot of flexibility to cover things like getting extra inventory or hiring seasonal labor as well as helping you get from one quarter to the next if most of your orders come a certain time of the year.

This loan isn’t for everyone. Sometimes there’s a minimum amount that must be drawn on the line of credit at all times, and the rates may be a bit higher than they are for term loans, functioning similarly to credit cards.

Since the line of credit is such a flexible source of funding, you might use it for a number of things including transitioning your business online to help you adapt to the changing business environment caused by COVID-19.

Bridge Loan

A bridge loan is short-term financing used to stay afloat while waiting for other funding with more favorable terms to come through. If you knew you had a high expectation of receiving a loan in the next few months or were waiting to close a round of funding, you might use a bridge loan until you received the funds from the new deal.

Bridge loans may be paid back in terms anywhere from 3 – 18 months and typically have daily or weekly payments. However, a bridge loan could be a good option if you just need the cash in the short-term and will soon be getting a more permanent source of funding.

Other Financing Options

If a new loan doesn’t seem right to you, you do have a couple of other options that you can take a look at. Let’s go through them.

Merchant Cash Advance

A merchant cash advance, sometimes referred to as a business cash advance, is a purchase and sale transaction where the business sells a portion of its future credit card or other receivables. Instead of having a fixed payment that has to be paid back on a daily, weekly or monthly basis, payments are made based on your credit card sales

Payments for a merchant cash advance are made by taking a percentage of your credit card receivables until the advance is paid. Because of this, there’s no set term and that makes this a very flexible.

If you can show strong sales, credit also doesn’t tend to hold you back with a merchant cash advance because payments are based on the performance of your business.

Small Business COVID-19 Relief

In the wake of COVID-19, business has certainly changed temporarily and in some ways maybe for a lot longer. As businesses feel their way through this new reality, it’s natural to struggle a little bit. The good news is that small business relief is available.

There are a couple of small business COVID-19 relief options available from the federal government, most notably one from the federal government in the form of the Paycheck Protection Program (PPP). The best thing about the PPP is that if you follow the terms of the loan and spend at least 60% of the loan funds on payroll the remaining funds can be used on mortgages or debt obligations that were incurred before February 15 of this year.

Beyond the relief offered by the federal government through the forgiveness and the Economic Injury Disaster Loan (EIDL) along with associated grant funds, many states are also offering assistance and programs of their own intended to provide small business relief.

Private lenders may have their own options when it comes to small business relief, so if you feel you need assistance, don’t hesitate to reach out to the servicer of your loan to see what your options might be. Additionally, states and localities may have programs and relief options available.

There are also free resources available which may provide some small business relief to those impacted by this situation. With the right combination of business funding and making use of the resources available to you, it’ll help you survive this situation and come through it with renewed strength.

The post Private Financing Loans Available To Small Businesses appeared first on Loan Solutions OU.

So we wanted to clear that up as best we can. When there are emergency government relief funds being offered, and the IRS and multiple other government agencies are involved, it’s important to follow the guidelines. You’ll want to adhere to them if you want your Paycheck Protection Program loan forgiven, which is possible for those who document their funds appropriately.

Remember that the PPP and EIDL are SBA PPP loans, the government’s response to COVID-19 enacted as a way to keep small businesses from going under during this difficult time. In other words, they’re not to be abused. Here are the ways you can have your SBA PPP loan forgiven.

More: [Non-SBA Small Business Coronavirus Relief Options]

Follow The Guidelines

When you were doing your research on the PPP initially (see ours here), most blogs and news sites had great information about what the funds must be used for. As a reminder, they are:

• Payroll costs (at least 60% of your loan, and up to $100K per employee)
• Continuation of group health care benefits during periods of paid sick, medical, or family leave
• State and local taxes on compensation
• Rent (including lease agreements) and mortgage interest
• Utilities

If you want your SBA Paycheck Protection Program loan forgiven, only use it for the nonexhaustive above purposes. With new guidance that has recently been released, it appears there will be more flexibility when calculating how much of the PPP funds were used on payroll. Please note that you must document every dollar allotted to you through your SBA PPP loans if you want to apply for forgiveness. More on that later.

Now we’ll have a look at things you can technically do with your funds but cannot have forgiven.

Two ‘Eligible’ Uses Of The PPP, But Without Forgiveness

1. Making interest payments on debt accrued prior to February 15, 2020

If you have creditors asking for the money you owe them, you can use your SBA PPP loan to pay the interest on your other loans. The SBA lets you do this, just without forgiveness.

2. Insurance premium payments

Similarly, if you have to pay your insurance premiums, that’s OK, but you won’t be able to get forgiveness.

However, still document paying these bills with your PPP funds, because when it does come time for forgiveness, the SBA will appreciate seeing that you were thorough with your bookkeeping. If you do have questions regarding how to use your SBA Paycheck Protection Program loan funds or about forgiveness, you can contact your local SBA Field Office.

More: [Small Business Relief Financing For COVID-19]

Nonpermitted Uses Of The PPP

These are the ways you certainly don’t want to use your PPP loan:

• To pay salaries over $100K
• For payroll outside the U.S.
• For employer federal, FICA tax credits
• For employer FFCRA credits
• For 1099s
• For mortgage or debt principal

What happens if you use all or even part of your PPP funds for these purposes? Unfortunately, not only will part of your SBA PPP loan not be forgiven, but you may also be subject to immediate payback and possible legal action. So be careful to avoid these mistakes!

Tracking Expenses

You’ll want to use your payroll provider, your own accounting software or tracking tools to record every financial transaction that you make using your PPP funding, even if it’s not a forgivable expense, like paying credit card debt. Please note the following for the SBA when it comes time to apply for forgiveness:

• The expense amount
• To whom you made the payment
• The category of the expense
• The date of the transaction
• The purpose of the transaction

Keeping official records of each transaction in the form of a paystub or receipt will go a long way when it’s time for forgiveness. You can even put “PPP” in the memo of your checks where applicable.

More: [How Can A Small Business Survive The Coronavirus?]

How To Apply For SBA Paycheck Protection Program Loan Forgiveness

An important detail to keep in mind about SBA PPP loan forgiveness is you have to apply. The CARES Act dictates that you must apply at the end of the 8- or 24-week period (depending on when you PPP loan was issued) following your loan disbursement. You’re required to submit the following, which might not be an exhaustive list, if you wish to receive forgiveness:

• The amount you’d like forgiven
• Verification of your business’s total number of full-time employee equivalents on payroll and their pay rates, including IRS tax filings and state income, payroll and unemployment insurance filings
• Verification of your payments on mortgage interest, rent and/or lease obligations and utilities
• Certification from an authorized representative of your company that all the information is correct and that the amount being asked for forgiveness conforms with PPP guidelines

You’ll want to err on the side of meticulousness when it comes to keeping track of all your SBA PPP loan expenses over the 8- or 24-week period. Our mantra to you is: “Track and document everything, even if you think you don’t need to.” You can also review the SBA PPP loan forgiveness application to see what exactly is required to apply for loan forgiveness.

If you think it might be a relevant and appropriate expense to document, do so. Even if you think it’s unnecessary, it’s better to be safe than sorry. You don’t want to have a seemingly small mistake be the downfall of your loan forgiveness.

No Such Thing As ‘Too Thorough’

Use your SBA PPP loans for their intended purpose, but also remember that you must track every expense. Always be thorough with your loans. Keep strict books and logs. You’d rather be too thorough than the alternative. There are certain things you really want to avoid using your SBA PPP loans for, like salary amounts over $100K, certain tax credits and certain employee types, including 1099s.

COVID-19 has already changed so much about how we do business and it’s difficult to say what changes we’ll see next, but we’ll be here, doing our part to keep you informed on the latest.

Here are some of our articles you may find helpful:

• How To Generate Income Online During COVID-19
• 8 Free Resources For Businesses Facing The Coronavirus
• In The Business Of Expecting The Unexpected

Please contact us if you have any questions. We’d love to help.

The post How To Get Your SBA PPP Loan Forgiven appeared first on Loan Solutions OU.

While every business currently wants to open as fast as they can, many are facing financial hardships in order to reopen the business after COVID-19. From affording payroll, to paying rent, to needing to purchase supplies, and so much more. The good news is financial help to reopen your business after COVID-19 does exist.

Evaluate COVID-19’s Damage To Your Small Business

You’ve likely been keeping an eye on things and have a general idea of how your small business has been impacted, but now is the time to really dig into everything to see how deeply COVID-19 has cut. Look at the numbers and ask yourself some hard questions. What is your profit and loss? What is your revenue this year compared to the same time last year? What is your current cash flow? How many employees have you had to lay off or let go? How many customers have you lost to competitors? Should your business apply for disaster relief funding?

Don’t just focus on your business, assess the damage at an industry level as well. How has this impacted the industry in which your small business specializes? Knowing the damage on a smaller and larger scale and what it’ll take to recover for both will help prepare you for the next step.

This will not only help you prepare for the upcoming months, but it also will allow you to get a good understanding of what is needed to reopen your business and how much capital you need at your disposal to ensure success.

Consider Financial Help To Reopen Your Business After COVID-19

In fact, you may incur additional costs for reopening your business after COVID-19 restrictions begin to slowly ease up. These expenses may include redesigning your office, providing PPE for employees and additional cleaning costs. You may need capital to pay your rent, purchase supplies or a delivery car, purchase merchandise to resell, pay bills that have been stacking up or just pay off some debt you owe from trying to keep your business afloat during the pandemic. Key thing to note is that your sales will not match the numbers you were seeing pre-COVID – at least not right away. While we truly hope that is not the case, reality is that it may take months to get back there, so you’ll need to be prepared. When faced with the financial obstacles you’ll experience during and directly after the reopening of your business, ask yourself the following questions:

• Will you need to redo your budget (cut costs, add in loan repayment, etc.)?
• Do you have an online credit card processing system in place?
• Will you need to hire new employees?
• Will you need to provide delivery services? If so, do you need to purchase a vehicle to do so?
• Will your supply chain change? Will the prices stay the same or go up as businesses are desperate to stay afloat?
• Do you need to raise prices?
• Will you have more employees work from home? If so, do you need to purchase tools to allow them to do, such as technology?
• Can your company afford sick leave or paid vacation?
• Are your products or services less relevant at this time? Are there other products or services you can offer that are more in-demand right now? If so, do you have the capital to purchase them?
• If sales don’t immediately increase, do you have enough capital to secure employee payroll for at least 2 months?
• Do you have enough capital to cover part of the benefits that the company is responsible for, such as health insurance?
• Do you have to pay rent? Do you have enough capital saved up to afford rent the next 2 months?
• If there is another wave, is your company financially stable?

If some of these questions have left you with some uncertainty, you should get moving on identifying the company’s strongest and weakest points to determine if you need financial help. The good news is, financial help to reopen the business after COVID-19 exists. From private to non-private loans, companies do have various loan options available.

Small Business Administration (SBA) Disaster Loans

SBA Disaster Loans come in a few different forms, including the Economic Injury Disaster Loan (EIDL), SBA Express Bridge Loans and the Paycheck Protection Program (PPP). With the PPP, you can ensure your staff gets paid while your business finances recover and your sales return to normal, hopefully even better, numbers.

The SBA Economic Injury Disaster Loan (EIDL)

This loan is provided to small businesses through the government. The SBA Economic Injury Disaster Loans provide up to $2 million in assistance with an interest rate of 3.75% for-profit companies and an interest rate of 2.75% for nonprofits. The loan terms range up to 30 years, and there are no upfront fees or early payment penalties. This loan is ideal for companies that are in need of a more long-term loan to payback, however, companies that need a short-term loan can also benefit from this type of loan. The use of capital can vary, so it is best to check out their website for more information.

Paycheck Protection Program

The Paycheck Protection Program provides small businesses with funds to pay up to 8 weeks of payroll costs, costs related to group health care benefits during periods of paid sick, medical or family leave, and insurance premiums. The fund can also be used to pay interest on mortgages, rent and utilities and interest on payments on any other debt obligations that were incurred before February 15, 2020. If in the questions mentioned previously, you were in need of securing payroll for the upcoming 2 months, hire new staff, or pay rent then this might be a good loan option for you.

Lines Of Credit

There are also non-SBA relief options, including lines of credit. A line of credit can be a good option for covering business expenses for the first few months of reopening because it offers a revolving line of credit that you can use whenever you need them. You’ll likely encounter unexpected expenses as you work through the reopening of your business and having that quick access to funds can be extremely helpful. While you have a max amount of money you can borrow, you don’t have to use the full amount. Whatever amount you choose to borrow is the only amount you’ll have to pay back with additional interest.

A line of credit can be very beneficial to purchase new inventory, supplies, a delivery vehicle, technology and so much more. You only borrow the amount you need, which means if you end up spending less or getting a better deal, even better!

Merchant Cash Advance

A merchant cash advance is also a private financing source, unlike the SBA Relief loan.

The way a merchant cash advance works is the business receives an advance that is paid back based on future credit card receivables. In another word, the advance gets paid back through a percentage of the company’s future receivables. Many business owners love this option as it allows for flexible payments and has easier requirements that must be met in order to be approved. Why this is ideal for the COVID-19 situation? That’s easy, you receive an advance to cover the costs needed to reopen, and a percentage is taken off of future receivables. This allows the advance to go at your companies own pace. Since the next upcoming months will be more unpredictable than usual, an advance does offer more stability for many business owners.

Next Steps For Your Business

During a pandemic, it is more crucial than ever to take certain financial precautions to ensure your company stays afloat. Now that that you know some of the financing options available, the next step for your business is to understand how the next few months will roll out, and ask yourself what in these next few months will require additional capital or will require having capital saved up 2 – 3 months in advance.

We’re here to help your business succeed in good times and bad. For more information relating to COVID-19 and small businesses, read more on the Loan Solutions OU Blog or contact us with your questions.

The post Need Financial Help to Reopen Your Business After COVID-19? appeared first on Loan Solutions OU.

During COVID-19, some small-business owners have thought they don’t need to worry about the protection of their credit score. But the fact is, they do. Although much of the economy is still shut down, credit scores can still be a contributing factor when it comes to obtaining financing or in other aspects of daily life.

If you’ve been impacted with hardship during COVID-19, your credit score may follow suit. Luckily, we’ve organized some strategies to help you protect your credit score during COVID-19.

If you have questions, please contact us.

More: [A Complete Guide To The Paycheck Protection Program]

Conventional Wisdom

We’re not sure how long the economy will be shut down, or how bad the recession will be. Your credit score will be worth thinking about if you no longer have income due to unemployment, or if you’ve had your wages reduced. You may find yourself unable to make your loan or other financing payments like you used to. If you start skipping payments, your credit score will likely decline.

Some of the steps you can take to protect your credit score during COVID-19 may sound familiar:

• Make your payments on time if you can
• Improve your credit usage percentage by reducing your debt if possible
• Only apply for financing that you (for consumer purposes) or your business (for commercial purposes)really needs

More: [8 Ways You Can Prepare Your Business For Success After COVID-19]

A Few Less-Conventional Steps

But here are some additional, though less traditional, steps you can take to protect your credit score during COVID-19:

• Refinance your consumer loans: If you’re struggling to pay your bills and you lock in a lower interest rate on your existing debts, you may be able to meet your obligations. Our sister company Quicken Loans® can help you refinance your mortgage today.
• Freeze your credit: After refinancing where you can, freeze your credit on your credit reports to prevent scam artists from opening any new accounts in your name.
• Apply for unemployment: If you’ve lost your job already or you lose it in the near future, apply for unemployment benefits as soon as possible to supplement your income. Income doesn’t directly impact your credit score, but missing payments probably will. The process of receiving unemployment can take time, so try to apply quickly.
• Communicate with your financing companies: Financing companies are not legally required to reach out, and they may not, even if they notice some changes on your end of the agreement. Be proactive and call the financing company. . Many financing companies are already taking many of these calls and will be prepared with options for you and your business.

More: [Small Business Relief Financing For COVID-19]

The CARES Act Protects Credit Scores During COVID-19

This may come as a surprise, but the CARES Act that was passed in March actually has a section in it to help protect your credit score during COVID-19. This applies to consumer lenders who furnish credit information to credit reporting agencies. Here is how you use the provisions in the CARES Act if you’re unable to pay your bills:

1. You inform your lender that your inability to make your payments is due to coronavirus income loss.
2. You get an accommodation from your lender with an agreement in writing. The plan can include deferred or reduced payments.
3. You verify that you’re currently in good standing with your lender.
4. You make your payments going forward to fulfill your new agreement.

What you really want to avoid is ending up in “delinquent” status. That’s why we suggest you reach out to your lenders and open up a dialogue about your bills, if necessary. It’s an act of good faith that suggests you’re doing what you can to make things right, even when you can’t pay your bills. It turns out that open communication is great for credit score protection during COVID-19.

When you agree to new terms with your lenders, you’ll have the CARES Act to protect your credit score, so you can rest assured knowing that doing the right thing leads to the protection you may need right now.

More: [How To Generate Income Online During COVID-19]

A Balance Transfer During COVID-19 Could Help Your Credit Score

Another option to protect your credit score during COVID-19 is a balance transfer for either a personal or business credit card. If you have a growing credit card balance that you’re unable to repay right now, you may be able to move your debt to another card that has a lower interest rate. This way you can eliminate any extra interest payments on your credit card debt.

So rather than letting your credit card debt get out of control with high interest rates, you can stop your growing debt problem for now. It’s a temporary solution though, so you’ll have a little time to get back to where you need to be, but it won’t last forever. The debt still exists. Once you’re able to, consider setting the goal of eliminating credit card debt for good.

More Steps You Can Take

• Check your credit often. Making sure your credit report is accurate is more important than ever. If you check your report often, you can catch any fraudulent activity before it starts to have an impact on your credit report.
• Dispute anything inaccurate. Many credit reporting companies allow you to dispute anything you find that appears fraudulent. Protect your credit score during COVID-19 by reporting anything that looks inaccurate.
• Protect your identity. Identity theft and other scams are usually more prevalent during times of crisis, so it’s more important than usual to protect your identity. Create strong passwords, don’t overshare on social media, and don’t take the bait on scams.
• Seek financial assistance if you have to. You can work with a certified credit counselor if you need help managing your debt. There are nonprofit counselors who can help as well. Before you make any hasty decisions regarding any of your investments impacted by the U.S. markets, consult a financial expert or talk to your company’s 401(k) representative.
• Plan ahead. Tighten your budget to ensure you have the funds you need for important expenses. Budgets are helpful even during normal times, but to protect your credit score during COVID-19, you’ll want to be especially strict.

More: [The Future Impact Of COVID-19 On Small Businesses]

Final Thoughts

Protecting your credit score during COVID-19 is still just as important as it was 3 or 6 months ago. Protect yours by following these helpful suggestions. If you’re having trouble paying your bills, reach out to the financing companies to find out what kind of help they might be able to give you.

You can visit our sister company Rocket HQ^SM if you’re interested in learning more about this topic and if you’d like to have a great way to keep an eye on your credit report.

More articles you may like:

• 8 FREE Resources For Businesses Facing The Coronavirus
• In The Business Of Expecting The Unexpected

The post How to protect your credit score during COVID-19 appeared first on Loan Solutions OU.

Small Business COVID-19 Relief

The U.S. government instituted a couple of programs through its Small Business Administration (SBA) in order to provide emergency financing for small business owners impacted by the pandemic. This article will serve as an FAQ of the available programs.

What SBA Disaster Loans Are Available?

There are a couple of different SBA disaster loan programs you could get at the moment. There’s the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL). There’s also a separate bridge loan program for those who are waiting for EIDL funds. We’ll do a quick overview of these programs followed by some of the major questions that are being asked around each of them.

Paycheck Protection Program (PPP)

The Paycheck Protection Program pays for up to 8 weeks of payroll expenses from the time you get the loan. The maximum loan amount is the lower of $10 million or 2.5 times your payroll. For the purposes of this program, payroll includes:

• Wages, salaries and tips, etc. up to $100,000 per employee
• Vacation costs; parental, family medical or sick leave; healthcare benefits; allowances for separation or dismissal and payment of any retirement benefits
• State and local compensation taxes

You can also use the money to pay interest on mortgages, rent and utilities as well as debt incurred before February 15, 2020. However, one of the central features of this program is that the loan can be forgiven. In order for that to happen, 75% of the loan funds must be spent on payroll. In addition, you have to retain employees so that employment is at the same level it was prior to the crisis. Finally, employee wages can’t be reduced. If they are, some portion of the loan may not be forgivable. For the portion that isn’t forgiven, payments are deferred for 6 months. The borrower has to apply for forgiveness through their lender.

When those 6 months are up, the remaining portion of the loan is paid back at a 1% interest rate over a 2-year term.

Is the SBA processing PPP loans?

After running through the additional round of funding, Congress authorized $310 billion more funding for the PPP. Applications are still being accepted at this time.

[ A Complete Guide To The Paycheck Protection Program ]

Economic Injury Disaster Loan (EIDL)

The Economic Injury Disaster Loan provides eligible businesses with up to $2 million in funds to stay afloat at a rate of 3.75% for for-profit companies. Nonprofits get an interest rate of 2.75%. The term of the loan can be as long as 30 years. There are also no upfront fees for early payoff.

In an effort to get funds to small businesses in need as quickly as possible, the SBA is providing a loan advance of $10,000 while it makes decisions on whether to approve your loan. This doesn’t need to be paid back in the event that you end up not qualifying for the loan, so it functions as a grant. If approved, loan repayment starts 1 year after the funding date.

Is the EIDL out of money?

At the beginning of the year, Congress funded EIDLs with a $10 billion appropriation. However, given the fact that COVID-19 caused emergency declarations and widespread business closures across the country, that went quickly. Congress recently appropriated $60 billion in additional funding for the program. However, there are signs that this is being strained. The SBA has stopped accepting nearly all new applications and they are prioritizing existing ones in the order they were received.

For more information, you can visit the SBA website.

SBA Express Bridge Loans

If you already have a relationship with qualified SBA lenders and you’ve applied already for an EIDL, you may be able to get a bridge loan to keep yourself up and running while waiting for an approval decision or the payout of your EIDL loan. You can get up to $25,000 and there’s a fast turnaround on these, but part of the deal is that you have to pay the loan back at least in part with the proceeds from your EIDL loan. Talk to your lender about whether this is a good option for you.

SBA Disaster Loan Assistance

Now that we know a little bit about each of the programs, let’s go over the logistics of some of this by getting to a few more questions you might have.

What SBA loan should I apply for?

As it stands right now, the answer to this question is rather easy because the SBA is only accepting new applications under the PPP. However, this is a fluid situation. If Congress makes more funds available for the EIDL, then you would have a decision to make.

[ Should Your Business Apply For Disaster Relief Funding? ]

The purposes you can use the funds for really overlap quite a bit and there’s nothing stopping you from applying for both programs should the EIDL program receive more funding, but the real answer to this question may come down to timing.

The clock on the PPP funding is 8 weeks from the date the loan is disbursed. Depending on the timing of when businesses are allowed to return to normal, that may or may not work for you, particularly if you have to reopen in only a limited capacity. If you don’t end up being able to rehire all of your people and maintain your current salary levels, it could still work, but you would have to pay back some amount of the loan. That’s something to consider.

For more on this decision, check out this post on which SBA loan is right for you. If you’re unsure, you can speak with a financial advisor about what would be best.

What SBA loans will be forgiven?

Assuming you meet the conditions around using 75% of the Paycheck Protection Program loan on payroll costs, this loan can be forgiven. You apply through your lender. You’ll have to show documentation regarding how the funds were spent and your payroll levels, for example.

To the extent that you didn’t meet guidelines around rehiring or salary levels, there are deductions from the amount that’s forgiven.

What SBA loans are taxable?

Because you’re borrowing money from a lender and have to pay it back, loans are generally not considered income. Therefore, they aren’t taxable. However, under IRS rules, loan forgiveness is considered taxable income generally.

Under the CARES Act, loan forgiveness under the PPP isn’t taxable. While states generally follow IRS guidelines to take the lead from the federal level, they don’t have to. Because of this, you’ll want to check the local regulation in your area. Feel free to speak with a financial advisor or other tax professional as well.

If I applied before the EIDL and PPP ran out of funds, will I still get approved?

If you applied for these programs before and they previously ran out of funds, the SBA is still processing applications that were in the backlog for both the PPP and EIDL, so you can still be approved. The earlier you applied, the better chance you may have of getting your funding. This is particularly true of the EIDL.

How fast can I get my loan or can I get approved?

Because COVID-19 has caused disaster declarations and business closures all over the country, as opposed to the targeted relief the SBA is used providing in the event of other disasters like hurricanes and tornadoes, the administration is backlogged in trying to keep up with the high demand. You should be able to check the status of your application online by logging into your account through the SBA.

What are my loan options for small business relief?

In addition to the PPP and EIDL loans available through the SBA, states and local governments may have loans or even grant relief options available. We encourage you to check out our list of state resources.

There are also other relief efforts underway from lenders, private companies and funds supporting various industries.

If you have questions about any of these programs, we encourage you to speak with a financial advisor about the particulars of your situation and which options are right for you.

The post FAQ’s About The COVID-19 SBA Disaster Loans appeared first on Loan Solutions OU.

Although some businesses have benefited from the recent small business coronavirus relief programs such as PPP loans and EIDLs, not all small businesses have been able to secure the benefits. If you’re a struggling small-business owner, then there are other options to consider, including a line of credit or merchant cash advance.

Today we’ll take a closer look at the non-SBA options that could provide financing relief for your small business.

Small Business COVID-19 Relief

In response to the crisis, the federal government passed the CARES Act to help the individuals and businesses get back on their feet. The effort to help keep businesses open included allocating funds to several kinds of COVID-19 relief financing. We will take a quick look at these two options below.

SBA Paycheck Protection Program (PPP)

The Paycheck Protection Program, also known as the PPP, is offering forgivable loans to small businesses. The goal of the program is to help small businesses stay open and continue to provide a paycheck to their employees.

Initially, $350 billion was allocated to this program through the CARES Act. Those funds quickly ran out, but Congress recently approved an additional $310 billion to continue funding PPP loans. If you have fewer than 500 employees, then it might be worthwhile to apply.

For a more detailed look at this program, check out our complete guide.

SBA Economic Injury Disaster Loan (EIDL)

The second small business loan option funded by the CARES Act is the Economic Injury Disaster Loan. Unfortunately, this funding option is not currently available for most small businesses. However, if you have an agricultural business that is struggling, then you can still apply on the Small Business Administration website.

Small Business Coronavirus Relief Options

Although both types of funding relief through the Small Business Administration are attractive, the funding is not unlimited. If you’re unable to secure relief through those loans, don’t panic. You’re not out of options. In fact, you still have several other viable financing options that could help you survive these difficult times.

State And Local Small Business Programs

There is no community in the country that has not been affected by the current economic conditions in some way. With that, many state and local governments are working to help their small-business owners keep their doors open.

The best way to find out if you qualify for a state program is to go to your state government’s website. You’ll likely see extensive information related to their response to COVID-19. Within that, you should be able to find more information about any small business Coronavirus relief programs that are being offered. If you qualify, then take the time to apply.

Beyond the help of your state government, many local municipalities are starting to add their own relief programs for their community. Check out your local Chamber of Commerce to find out more about any relief programs that you might qualify for. Many businesses have found that their Chamber of Commerce provides important information regarding small business COVID-19 relief financing.

Private Grants

Many companies, such as Facebook and Amazon, are providing grants for struggling small businesses. Although the requirements for private grants will vary dramatically, it is possible that your small business may qualify. Research any private grant options for your industry that could help you make ends meet.

Merchant Cash Advance

A merchant cash advance can be a good option if you need capital to run your business immediately. With a merchant cash advance, the financing company will purchase at a discount, your busineses future credit card and other receiveables. Payments are variable and based on daily receivables.

Line Of Credit

If you’d like more flexibility to solve your financing needs, then a line of credit can be a good solution. You’ll have the ability to borrow up to a certain amount, but you’ll only pay interest on the money that you actually borrow.

For example, let’s say you secure a line of credit for $50,000 but only borrow $20,000 to cover your financing needs. You would only need to repay $20,000 plus interest instead of $50,000 plus interest.

The beauty of a line of credit is that it will be there to fund your needs as necessary. The revolving nature of this type of credit will allow you to have quick access to funds whenever the need arises. Depending on your business, the line of credit may need to be secured by collateral, but it could remain unsecured in some cases.

Surviving The COVID-19 Crisis As A Small Business Owner

Right now, it is critical to be flexible as a small-business owner. The changing nature of the COVID-19 situation leaves many businesses vulnerable to long-term changes. Whether you need to pivot to an online revenue model or seek out a loan to fund your business operations, the actions you take could help your small business survive the coronavirus.

As we navigate these uncharted waters, please take advantage of the free resources offered by Loan Solutions OU. We’re here to help in these uncertain times.

The post Non-SBA small business coronavirus relief options appeared first on Loan Solutions OU.

These are all results of the COVID-19 pandemic.

There is, though, a bit of COVID-19-related financial relief for those small-business owners in the form of the Paycheck Protection Program, better known as the PPP. This loan program, part of the federal government’s massive CARES act, is designed to help businesses stay open and keep their workers employed.

Business owners who qualify for a loan through this program won’t have to pay some or all of the money they borrow if they follow certain rules on how they spend their loan proceeds. It could be a help to small-business owners who are struggling to generate income during the pandemic.

That “following the rules” part, though, is important: PPP loans can be complicated, and it might prove challenging for small-business owners to adhere to some of the program’s rules. There aren’t even guarantees that the program won’t run out of money again.

Here, then, is a guide to how PPP loans work, what businesses they might benefit, and the challenges business owners will have to overcome when applying for this financial relief.

[ More Funding Available For The Paycheck Protection Program – Here’s What You Need To Know ]

Small Business COVID-19 Relief

The federal government in late March passed its Coronavirus Aid, Relief and Economic Security Act — better known as CARES – to help businesses and individuals struggling in the wake of the COVID-19 pandemic. As part of this package, the government allocated $349 billion for small-business loans made through the Small Business Administration to help business owners pay their workers and cover certain other expenses.

The problem? The program proved so popular that it ran out of money on April 16. Congress voted to refund the program, with the second round of PPP funding beginning April 27. This round provided an additional $310 billion for new loans to small businesses.

How fast will PPP funds run out?

The PPP remains popular. The Trump administration announced that as of May 3, 2.2 million small-business loans worth $175 billion had been made during the second round of the program.

Treasury Secretary Steve Mnuchin and Small Business Administration Administrator Jovita Carranza said in a statement that the average size of a loan made through the program’s second round was $79,000.

The question, though, is how long these funds will last. The first round of the PPP ran out of money quickly, and the numbers suggest that the second round of funding will, too.

Government officials have said that they’re willing to consider refunding the program again to help business owners keep people employed. But small-business owners who need this financial assistance today should apply for their loans quickly if they don’t want to wait through whatever delays occur in a possible third round of funding.

[ Should Your Small Business Apply For Disaster Relief Funding? ]

How soon can I apply for loans through the PPP?

Business owners can apply for PPP loans now. They can do this by working with any existing SBA 7(a) lender, which includes federally insured banks and credit unions. Business owners can also work with other lenders who have been approved by the Small Business Administration to make PPP loans.

What businesses are eligible for PPP loans?

Any small business with 500 or fewer employees may be eligible for a PPP loan. But even businesses that employ more than that number might qualify for one of these loans, if they meet the SBA’s industry-based or alternative size standard.

According to the alternative size standard, a business qualifies for a PPP loan if as of March 27 it had a maximum tangible net worth of $15 million or less and had an average net income after federal income taxes of no more than $5 million for the most recent 2 fiscal years.

There is also the industry-based size standard, which states that companies with more than 500 employees might qualify as a small business if they employ fewer workers than the average company in their industry.

These standards can be confusing, so it makes sense to work with your bank, credit union or other lender to determine if your company qualifies for a PPP loan.

The terms for a PPP loan are the same for every business: an interest rate of just 1%, a 2-year term and no payments for 6 months. There are also no fees for borrowers or lenders, and business owners are not required to put up collateral or personal guarantees for their loan.

How does PPP loan forgiveness work?

PPP loans are attractive because some or all of the loan will be forgiven by the SBA depending on how business owners use the funds.

The SBA will forgive all of the loan proceeds that businesses use to cover their first 8 weeks of payroll costs, rent, utilities and mortgage interest. The clock on that 8 weeks starts ticking as soon as business owners receive their PPP funding.

The key, though, is that business owners must use the money as the SBA intended. The purpose of the loan is to keep people employed, so the SBA wants owners to spend most of their loan money on paying workers.

According to the program, at least 75% of the amount of the PPP loan that is forgiven must have been used for payroll. Businesses will have less of their PPP loan forgiven if they reduce the number of full-time employees on staff or if they decrease the wages or salaries of their workers.

Businesses, then, must be certain that they can use most of their loan money on retaining or rehiring workers. This can get complicated: Say you run a restaurant and you had to let most of your employees go after your state suspended in-house dining. You apply for a PPP loan and get it. You can now hire those workers back.

But what if these workers filed for unemployment and are now earning an extra $600 a week from the federal government, which boosted unemployment benefits to help people who lost their jobs because of COVID-19? They might be making more money on unemployment than they would be working for your business. Even if you offer them their old jobs back, they might not want it.

If you can’t hire enough workers back, you might struggle to spend enough of your loan on payroll. You might then have a smaller portion of your PPP loan forgiven. To earn forgiveness on a PPP loan, you must either keep your payroll at its current level or rehire those employees you laid off because of the pandemic by June 30.

When do I have to start repaying the loan?

You’ll have to start repaying your loan – or at least the portion of it that isn’t forgivable – either 6 or 12 months after you receive it. If you spend your the whole amount on payroll, mortgage interest, rent and utilities, your entire loan might be forgiven.

How much can businesses borrow through the PPL program?

How much you can borrow depends on your individual business. According to the SBA, a business can borrow up to two-and-a-half times its average monthly payroll costs. You can’t borrow more than $10 million, no matter how much you pay each month for payroll.

If your business’ average monthly payroll costs are $200,000, you can qualify for a PPP loan of up to $500,000.

Can I apply for more than one PPP loan?

Businesses can only apply for one PPP loan. However, if you run multiple businesses, you can apply for PPP loans for each one.

If your business can’t qualify for a PPP loan, you might benefit from other assistance. Check out our list of free resources for businesses during the coronavirus outbreak.

And finally, take this time to sharpen your business plan. A strong business plan can help you prepare for the unexpected in the future.

More articles you may like:

The Future Impact of COVID-19 On Small Businesses

8 Ways You Can Prepare Your Business For Success After COVID-19

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