The Paycheck Protection Program is a Small Business Administration program aimed at encouraging small business owners to keep employees on payroll. If a small business keeps all employees on payroll for eight weeks, the SBA will forgive up to 100% of the loan if the loan is used for payroll, utilities, rent, or mortgage interest. Eligible businesses are small businesses up to 500 employees, veteran organizations, sole props, self employed, independent contractors, and eligible non-profits. These eligibility requirements are more thoroughly outlined in the Small Business Act. The loan program offers up to $10 million.
Why should I apply for the Paycheck Protection Program?
The Paycheck Protection Program can be used in combination with the SBA Economic Injury Disaster Loans. This means a small business can apply for an SBA EIDL, use the option to receive fast advanced payment of up to $10,000 within 3 days, and apply to the Paycheck Protection Program. The advance payment comes out of the loan for Paycheck Protection or the EIDL loan amount, but even businesses that do not qualify for an EIDL still could receive up to $10,000. The amount your business is offered is still based on your application, so not every business will receive the full $10,000 advance.
The money offered to your business is forgiveable up to 100%. The qualifications of forgiveness are that you maintain your payroll based on 40 hour weeks for 8 weeks. At least 75% of the loan amount must be spent on payroll. If you spend more than 25% of the loan amount on non-payroll costs like rent or utilities then forgiveness will be reduced and you will have to repay some of the loan amount.
Next, the funding is likely to run out unless Congress approves additional funding to this program. Wells Fargo has confirmed it is not taking new businesses on as part of the SBA PPP, and other larger banks are slowing on lending as well due to the lack of clarity involved in the program. Finding a lender that is SBA approved to process your application may prove difficult in the coming weeks at the June 30 deadline draws nearer and funding amounts dwindle.
What will I need to apply?
The SBA has a number of business documents they require for loan evaluation. The EIDL program takes at least 28 days to evaluate the amount of funding available to your business. SBA backed loans are known to have higher qualification standards than many alternative financing options, but the terms of the loans are often more generous for business owners. The SBA said it is waiving some requirements for the PPP to be more accessible to business owners. Some small businesses will not qualify, but if you have the paperwork to submit for evaluation, we strongly encourage that you do so. Get your business any help you are eligible for in order to stay strong through this pandemic.
What happens if I don’t qualify for PPP or EIDL programs?
There are alternative financing options available to business owners with not enough time in business or not enough time to wait for funding. The SBA is offering programs to help as many businesses as they can, but unfortunately, not all business owners will qualify. Even still, maybe the amount that you may qualify for is not enough to keep you going. Online lenders can offer loans at a more expensive cost but at a faster speed with lower qualification standards. Be sure to ask about the online lender’s operations during this time as some online lenders are scaling down their lending in order to protect their own businesses.
What if I don’t want an online loan?
Invoice factoring is an option for any small business owner that sells to other businesses. A factoring company evaluates your business quickly to provide funding fast. The qualifications are different than a loan’s qualification requirements, so many small business owners that cannot get a loan from the SBA will be able to qualify for factoring. This is because funding decisions are based on the strength of your receivables or invoices rather than credit score, time in business, or loads of paperwork.
How would factoring help fund my business?
Invoice factoring services pay businesses immediately for their open invoices. Essentially you are selling your invoices to a factoring company at a discount for funds the same day. This method of business funding works to improve your cash flow so you can meet the payment obligations that your business faces like payroll, rent, mortgage interest, utilities, production costs, or any other investment you make to strengthen or protect your business. Factoring offers flexibility and speed in your financing strategy, and it can be used alongside other financing options. Since the collateral is your receivables, many other financing options are available to your business even if you use factoring services. You don’t have to choose between financing options with factoring.