Your Business Credit

How to prepare your business for future pandemic aid

A to-do list you can tackle while lawmakers hash out a new round of emergency funding


Congress and the White House are negotiating a new round of pandemic aid, which will likely include more PPP funding and other relief for small businesses. Here’s how you can prepare to apply while lawmakers hash out the details.

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President Donald Trump signed executive orders on Aug. 8 that extended unemployment benefits, provided a payroll tax holiday, deferred student loan payments through 2020 and extended the federal moratorium on evictions.

However, Congress did not come to an agreement on the next round of stimulus payments for small businesses.

Both the Republican-sponsored Health, Economic Assistance, Liability and Schools (HEALS) Act, proposed on July 27, and the Democrat-sponsored Heroes Act, introduced in May, include plans to extend the federally funded Paycheck Protection Program (PPP), which offers forgivable loans to business that keep employees on payroll and is administered through banks and some financial technology firms.

Where the bills differ is in the details.

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How would the HEALS Act help small businesses?

The $1 trillion Republican-backed HEALS Act sets aside a second round of funding for the PPP. Applications for the PPP closed on Aug. 8, and currently, about $100 billion of the PPP funds remain unspent. That money, in combination with the new round of stimulus money, will bring the total of PPP funds available to $190 billion.

The bill would make funding available only to businesses that have 300 or fewer employees and can prove their sales have dipped by at least 50% in the first two quarters of 2020 compared to 2019. The PPP provides funds to help businesses keep employees on payroll.

The bill also includes $100 billion in funding to provide long-term loans of up to twice a borrower’s annual revenue or up to $10 million to seasonal businesses and those located in low-income Census tracts. The interest rate would be 1%.

The HEALS Act also includes employee-retention tax credits for businesses that keep workers on payroll during the pandemic. And it includes a five-year liability shield to protect businesses, hospitals and schools from being sued over coronavirus–related matters.

See related: Should you apply for PPP loan forgiveness now or later?

How would the Heroes Act help small businesses?

The Democrat-sponsored Heroes Act, introduced in May, will cost $3 trillion. When it comes to small business, the Heroes Act differs from the HEALS Act in that it extends the covered period to deploy PPP funds from June 30 to Dec. 31, 2020.

It sets aside 25% of the funds to go to microbusinesses with 10 employees or less, adds an extra $10 billion for Economic Injury Disaster Loans (EIDL) and expands the list of costs that can be forgiven.

5 ways to prepare your business for new funding

So how do you make sure your business is prepared to make the most of any additional stimulus funding that becomes available? Being organized can pay off. Here are some steps to take now, if you haven’t already, so you are prepared.

1. Open a business bank account

If you’re still using your personal bank account to deposit payments from customers, now is a good time to transition to a business checking account.

You will likely need to get a federal tax ID number for the business (free through the IRS website) and bring a certificate of formation from your state. To avoid repeated trips to the bank, inquire ahead of time about what documentation your bank requires.

Although you must pay fees to maintain a business bank account, keeping your business activities separate from your personal bank account will make it much easier to give lenders and the federal government an accurate picture of your business’s revenue and expenses.

The PPP application requires historical data on how much you have paid yourself and any employees on average. For most businesses, it asks for this data from 2019, but for new businesses the average monthly payroll must be calculated based on the time period from Jan. 1, 2020 to Feb. 29, 2020.

Even if you switch to a business bank account from a personal one, make sure that you download bank statements from your personal bank account for these time periods and ideally, the year before that, just in case you need them. This will give you the documentation you need.

See related: How to open a merchant account

2. Learn to love bookkeeping … or find a pro who does

Many business owners use accounting software such as FreshBooks, QuickBooks and Xero to keep their books. If you use this approach, make sure you actually reconcile your books, so they are current every month and easy for a lender to review.

If you find the task overwhelming and never quite get caught up, hire someone to do it for you. There are many excellent freelance bookkeepers available. Ask around among your business acquaintances for a referral or look for one on a freelance marketplace such as Upwork or Freelancer.

Another option is to try a service such as Bench or Bookkeeping Express. Bench uses automation and an assigned bookkeeper to keep your books in order. Bookkeeping Express provides full-service accounting to small and mid-size businesses.

The advantage of going to a service like this is that if your assigned bookkeeper gets busy during tax season, they have the ability to call in reinforcements.

3. Keep your taxes up to date

If you’ve fallen behind on filing your taxes, make it your No. 1 priority this week to work with your accountant to get them submitted to the IRS. Lenders prefer to see your most recent tax return.

4. Pay down business credit cards

Maxing out credit cards – even if you’re doing so as a temporary measure to survive the pandemic – will never help you win additional credit. High credit utilization hurts your credit score.

Check out your credit card balances to make sure you’re not using more than half of your available credit on any one business credit card. Moving debt to another, less-utilized card can help.

See related: What to do if you can’t pay your business credit card bill

5. Formalize how you pay your team

Using an outsourced payroll processing service, whether it’s ADP, Gusto, Paychex or another provider, instead of cutting paychecks yourself, can help reduce mistakes. It can also provide you with more robust records to supply to a lender on a loan application where you need to document your payroll.

There’s a monthly fee for payroll processing, but the added documentation you get can make it much easier to apply for a loan.

Bottom line

Don’t have the time or money to tackle the whole list at once? Implementing even one or two can help your situation. You can always tackle the rest gradually.

In the current, troubled economy, having cash on hand will give you breathing room and options. By running an organized business, you’ll have more opportunities to secure the financing and grants you need.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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