Founder and CEO of My Financial Home Enterprises, Dr. Cozette M. White states “our initial goal, when the global pandemic hit, was to help as many business owners stay afloat.” Although many business owners, were not prepared for the hit, our firm took the initiatives to assist numerous small business owners. Our goal is to hit $10M in funding!
In the process of helping business owners, we learned many were not prepared for such impact, thus they did not have their financial house in order. Our team and our PPP Referral Agents assisted over 200 business owners with packaging their loan documents for approval of loans. Before applying for a business loan, make sure your financial documents are in order and that you understand what lenders need from you.
These documents typically include:
- Up to three years of financial statements or tax returns
- At least three months of bank statements
- Accounts receivable reports
- Proof of ownership
Our firm found approximately 58% of small business we behind on filing taxes. We assisted business owners with becoming current in order to apply for funding. In addition, credit factored into the loan decision making which eliminated some of the hardworking business owners. According to Corey Williams of SBA, “your personal credit score should be need to be 580 or higher.”
So, what is PPP?
The federal Paycheck Protection Program (PPP) is an initiative designed to help small businesses cover their payroll and adapt to hardships caused by COVID-19. Depending on your business’s specifics, you may be eligible for a PPP loan with a low, 1% interest rate. And, if you follow federal guidelines for spending, this loan could be forgiven—essentially becoming a grant for your business.
Is your business a good fit for a PPP loan? Can you meet the guidelines to turn it into a grant?
PPP Explained – The Paycheck Protection Program was originally created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. PPP loans incentivized businesses to keep employees on their payroll (at their normal salaries) during the height of the COVID-19 pandemic.
In its original form, PPP funding was available to businesses planning to retain their employees on payroll and at their full salaries for eight consecutive weeks. If granted a loan, businesses were expected to spend it only on the following expenses:
- Payroll costs
- Employee wages, up to $100,000 per employee
- Paid leave
- Group health insurance premiums
- Mortgage interest
- Interest on other debt
- Utility costs
According to the CARES Act, 75% of spending had to be on payroll functions for the loan to be forgiven. However, if you partially met the guidelines, you could still receive partial forgiveness. Any portion of the loan that was not forgiven would mature after two years.
Small business owners were hesitant to apply for these loans for several reasons:
- To apply, you have to affirm that the loan is “necessary,” and some small business owners worried about the legal consequences of making this claim.
- The process seems complicated.
Some business owners were not sure they’d be able to rehire their employees after eight weeks. Due to the terms of the agreement, these owners’ loans may not have been converted into grants.
To encourage small businesses, including single-member businesses, to take out PPP loans, Congress has passed a new bill, called the Paycheck Protection Program Flexibility Act of 2020. It makes the following changes:
- Flexible spending – Now, only 60% of the loan must be spent on payroll costs for it to be treated as a grant. 40% can be spent on rent, utilities, taxes, and other eligible expenses.
- Longer timeline – While the original loan was meant to cover costs for just eight weeks, new loans can be used for up to 24 weeks. However, the funds must be used before the cutoff date of December 31, 2020. Loans given after July 16th won’t be able to use the full 24-week period.
- Loan term extended – Loans that are not converted to grants will now have a minimum five-year maturation period. Banks that granted loans before June may choose to extend the maturity period on those loans, too.
- Easier loan forgiveness – Borrowers will no longer be penalized for reducing their number of employees. If they’re not able to open at full capacity or their former employees are no longer available, the loans may still be forgiven.
With more funding available, small businesses are no longer competing with multinational corporations. In addition, it’s easier than ever before to receive forgiveness on your PPP loan.
Is Your Business a Good Fit For PPP?
After reading this far, you still may not be sure whether your business is a good fit for a PPP loan. The first step is determining whether you’re eligible for PPP.
There are three broad requirements for PPP eligibility. You must have:
- Been in operation before February 15, 2020
- Fewer than 500 W-2 employees
- Been impacted by COVID-19
It’s important to note some additional exceptions if you have defaulted on a previous federal loan or have been found guilty of a crime in the last 5 years.
There are just a few industries that cannot apply for PPP loans at all:
- Financial services companies
- Businesses that sell cannabis
Household employers (i.e., people who hire nannies or housekeepers)
Whether you’re still closed as your state continues phased reopening, or you’re now open and operating at a lowered capacity, a PPP loan could help with your business’s recovery. But even if you’re eligible based on the above, you may not be sure if the loan is a good fit for you.
Next, we’ll take a look at who should consider a PPP loan.
Small Local Businesses That Are Currently Closed
If you own a fitness studio, restaurant, bar, or personal services business (salon, spa, etc.), you may still be closed to in-person business in accordance with your state and city’s reopening guidelines.
In this case, the PPP loan may be a good fit for you.
It can help you to get your employees back on your payroll—even if they’re currently on unemployment. As soon as you’re approved, you can rehire them, and begin using your PPP funds to cover their salaries and even their lost tips.
Likewise, you can use the loan to help cover your rent, utilities, and interest payments.
Do you live in an expensive area where rent and utilities are usually more than 40% of your operating costs? Consider giving your employees bonuses or raises to make sure 60% of your spending is on payroll.
Small Businesses That Have Reopened
Even once you’ve reopened, your business is likely still experiencing the effects of COVID-19. You may be operating at just 25% capacity, with most of your staff still at home.
You don’t even need to experience a loss of revenue to apply for a loan. On the PPP application form, you’re able to cite the following reason for your application: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
As long as you can spend 60% of your loan on payroll, it should still be forgiven.
Are you self-employed? Freelancers, single member business owners, and independent contractors are also eligible for PPP loans. Just like larger businesses, you’re experiencing a reduction in income and work.
You can calculate your payroll costs based on your Schedule C from 2019. Need assistance, our office is staffed and ready to process your application.
Will My Loan Really be Forgiven?
One of your main concerns as a small business owner is whether or not your loan will really be forgiven. After all, you’re applying for a loan to make things easier—not to incur new debt.
Shifting rules and regulations have made it even trickier to understand who is forgiven.
The new PPP Flexibility Act makes it easier for small businesses that spend at least 60% of their loans on paycheck protection to receive reimbursement. In addition, you should receive partial forgiveness even if you made the following changes:
- Cut employee wages more than 25%
- Spent more than 40% on non-payroll expenses
- Reduced your number of employees
You can apply to your bank for forgiveness. Then, any remainder would be payable with 1% interest.
However, banks are currently calling for unconditional forgiveness of all loans under $150,000. With powerful banks rallying to the side of small businesses, there’s a good chance any additional legislation will help out small businesses even more.
Who Isn’t a Good Fit?
If you don’t plan to use the loan to cover any payroll expenses, the PPP program may not be a good fit for your business.
As of this article, My Financial Home Enterprises helped nearly 147 small businesses secure funding in excess of $2.4M in SBA EIDL and PPP Loan and Grants. Our mission is to assist small businesses with funding in excess of $10M in forgivable loans. If your small business is seeking funding, we encourage you to apply at here.
Contributing Writer – Dr. Cozette M. White, Tax and Accounting Strategist for Million-Dollar Executives & CEO’s. Learn more about Dr. Cozette M. White at www.cozettemwhite.com.
All images by Michael Rowe Photography | makeup by Melissa Hibbert