Updated: May 21, 2020
The impacts of COVID-19 on small businesses has unprecedented outcomes arising from the White House. The CARES Act is the largest economic stimulus package ever. This $2.2 trillion dollar package, earmarked funds for certain groups. For example, $350 billion was set aside for small businesses under the Payroll Protection Program (PPP). What really makes this program POPPIN’ is the fact that these loans can be 100% forgiven if you keep 100% of your employees. When money like this is coming into the economy, everyone wants to get their hands on it--- and they did! The PPP ran out of funding in just 14 days. This left a lot of businesses scrambling for funding. Donald Trump responded on Friday by adding $310 billion to the PPP. If you want access to this funding, I am about to break down what it takes to qualify and what it takes to keep that “100% forgiven” guarantee.
Getting ready to apply again?
Don’t think your lender is putting in extra work for you! If you applied for the PPP during the first round of funding, check with your bank to find out any additional information they may need from you. The new program has worked to remove “outliers” like Ruth’s Chris and Shake Shack that receive PPP loans that could have impacted actual small businesses. The returned funds from chain businesses will rollover into available funding and new eligibility rules are in effect.
Most loans are being denied because the lender does not have enough information. There are different requirements for different types of business owners. So, a sole proprietorship will need different things than a seasonal business. Your business needs a CPA or someone with a clear understanding of the requirement to ensure your business submits the needed documents. During the second round of funding, you will be able to apply online. This can help you clean up your documents so take advantage of it.
Applying for the first time?
A PPP loan can grant you up to $10M or 2.5 times your payroll costs.These loans are first come first serve. Contact your bank now to make sure they are supporting this next round of funding. The funds for the PPP are distributed through loans from the SBA. There are almost 2,000 options where businesses can apply for one of these loans. You can find eligible lenders here. Additionally, the United States Treasury gives funding to Community Development Financial Institutions (CDFI). These can be credit unions, loan funds, and Microfinance institutions.
Here are a few things you will need to apply:
1. Documentation verifying the number of full-time employees on payroll and pay rates
2. State income, payroll, and unemployment insurance filings
3. Documentation verifying payments on mortgage obligations, lease obligations and utilities, including cancelled checks, payment receipts, and transcripts of accounts.
For more tips on this, check out this YouTube video:
Already got a loan?
Some businesses were promised loans in Round I but have not received their funds. If you received an SBA certification number in Round 1, you will receive funds this round. Once you receive your loan proceeds, watch what you spend it on. If you put these funds towards the wrong thing you will lose your “100% forgiven” guarantee. At least 75% of your loan must be spent on payroll costs and no more than 25% on the other costs. However, payroll costs may not be what you think they are. It is important to talk with your CPA to set up a cash flow projection and determine how you can use the funds. Here are a few guidelines to help define “payroll costs”:
Payroll Costs include:
Gross pay-giving raises does not make payroll forgivable
Commission and tips
Employer insurance benefits (health, vision and dental)
Employer paid retirement benefits
Other Costs include:
Rent (auto leases are not considered rent)
Business loan interest
Utilities-gas, water, electric, telephone landline and internet
Additionally, it is important to keep up with your paperwork. You will be asked for documentation 8 weeks after receiving your loan. You need to be able to show that you spent all of your loan money appropriately. If you are a sole proprietor or self-employed worker, you can use your loan to replace lost revenue up to $100,000. However, any additional funding must be spent elsewhere. Parts of your loan may not be forgiven, this is okay. Anything that is not forgiven will need to be returned with 1% interest.
Applications for the 2nd round of PPP funding go live on Monday, April 27th!
This blog mostly covered the Payroll Protection Program. However, there are additional funding opportunities for small businesses under The CARES Act. The Economic Injury Disaster Loan (EIDL) is a loan advancement program for loans up to $10,000 impacting businesses losing revenue due to COVID-19. You can apply for both. However, if you receive both you can’t spend it on the same thing… confusing, I know. That is why I cannot stress enough how important it is to have a team working on this for your business. Here’s a tool to help you organize your finances. For more hot takes on COVID-19’s impact on small business, check out our latest podcast.