For some small business owners, it could still be worthwhile to apply for the Small Business Administration’s Paycheck Protection Program, though there is a large backlog. If you can get these funds, it can be a great way to conserve cash in your business.
It authorizes more than $320 billion for the Paycheck Protection Program (PPP), which provides forgivable loans to small businesses to cover payroll or the owner’s pay, taken through distributions. The PPP, created by the initial coronavirus relief package signed in March, ran out of funds before the huge volume of applications was processed.
The interim bill also provides $60 billion in loans and grants for the Small Business Administration’s Economic Injury Disaster Loan program (EIDL) which offers loan advances of up to $10,000 to small business owners facing a temporary loss of revenue. The advances do not have to be repaid.
For some small business owners, it could still be worthwhile to apply for these funds, though there is a large backlog, and the SBA’s system reportedly crashed on the day applications resumed. But getting these funds from the government can be a great way to conserve cash in your business.
The COVID Loan Tracker provides crowdsourced data on how applicants are faring, based on factors such as the type of business entity, the size of the business, region and other variables.
Get money to cover payroll (or what you pay yourself)
The PPP resumed taking applications on April 27, according to the SBA’s website.
This program offers forgivable loans at a 1% interest rate to cover payroll up to $100,000 per employee or, if you are a freelancer, your pay up to $15,385 per individual.
It can be applied to salary, wages, tips and covered benefits, including health care expenses, retirement contributions and state taxes on employee payroll, such as unemployment insurance premiums. For sole proprietors, pay is calculated based on 2019 net profit on the 2019 Form 1040 Schedule C (line 31).
To apply for the PPP, you have to go through a bank or non-bank lender that has been approved to process loan applications.
Some community banks have done an outstanding job of helping their customers apply for PPP funds, so if you do your business banking with one of them, it’s definitely worth a try.
The big banks have been slower to process applications from small businesses – particularly very small businesses – but it is still worth it to try applying if you bank with one of them, given that you might be able to get a forgivable loan to cover payroll costs for eight weeks.
Another option is going through QuickBooks, PayPal, Fundbox, Nav, Paychex, Ivy Lender or one of the other financial technology companies that have gotten approved to process the loans.
Getting a PPP loan can help greatly in conserving cash. Payroll costs and the owner’s pay are often the biggest costs in a small business. However, it is important to keep any employees on payroll during the eight weeks following the signing of the loan if you get it. Otherwise, the loan will not be forgivable.
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Replace lost income
The SBA’s emergency advance to replace lost income is available to small businesses experiencing “temporary difficulties,” according to the SBA’s website. The SBA has released data showing how many of these loans were approved by state as of April 24.
At the moment, the EIDL program is not taking applications, but that is likely to change soon, now that there are more funds available. Keeping an eye on the SBA’s webpage for the program and setting up a news alert in your favorite search engine will help you get your application in early so you can receive funding for your operations.
There is still some uncertainty in the rules of these emergency programs, so it is important to get advice from your accountant if you receive them. For instance, some business owners are still unclear on how to document the fact that they are using PPP funds properly.
It’s likely there will be more guidance soon, so make sure to stay on top of it. A forgivable loan is obviously much better for your finances than one that has to be paid back.