Funding for the Payroll Protection Plan has been approved and signed into law. Inside the $484 billion coronavirus stimulus bill $370 billion is allocated for small businesses, with $310 billion for PPP and $60 billion for the Economic Injury Disaster Loan program (EIDL). What can small business owners be doing right now?
Be prepared. (Apply immediately if you haven’t already.)
Allocate time for the project.
As a small business consultant, Lemon’s helps his clients position themselves to receive funding as soon as it’s available and he’s advised others who’ve contacted him to move forward, rather than wait.
“I’m able to provide existing clients with everything they need to apply in five minutes. I’m also accepting new clients, who are coming to me specifically for this purpose.”
If you don’t work with a business services firm, CPA or bookkeeper, give yourself additional prep time, especially if you’re new to preparing items like income statements.
Start with YOUR bank.
Lemons recommends beginning with the bank you regularly do business with because you’ll have less paperwork to pull together. If you walk in as a new client, you’ll have to prove you were in business as of February 15, and banks may require additional items to document that.
Expect the process to take time.
“Banks are backlogged, ” Lemons explains. If your bank is not being able to get to you, consider applying to a different bank. You can apply online through sites like Intuit Quickbooks or Kabbage.
According to Lemons, because banks are flooded, the process may be a long one. Prior to the coronavirus pandemic, only certain banks were approved to offer SBA loans. Now the SBA is allowing any bank to do it. It’s a new process for some of them, and they’re having to add new employees to address the onslaught of applicants. To complicate the process, each bank’s procedure is unique to that bank.
Economic Injury Disaster Loan in Lieu of a PPP Loan?
For small businesses that need funds and haven’t or may not receive PPP funding, an EIDL may be an option. This type of loan has been around for a long time and it’s different from a PPP loan. With a PPP loan, your creditworthiness is not factored in, and the loan (or a portion of it) is forgivable if at least 75 percent is used for payroll and the remaining 25 percent or less is used for rent and utilities.
With an EIDL loan, the max is $10,000, it must be repaid, creditworthiness is factored into approval, and when your credit is checked, your credit score will be pulled, which could lower your credit score.
It’s important to know, however, that if you get an EIDL loan and later get a PPP loan, you can roll the EIDL loan into the PPP loan to pay it off. The loan will then be forgivable like any PPP loan. In terms of your credit score, because the PPP loan will pay off the EIDL loan, it will be considered a loan repayment and your credit score could actually rise. You may be able to get the money you need from an EIDL loan faster, but if you don’t get the PPP loan, you’ll have to be prepared to repay it.
What can you do about cash flow if you’re having issues and haven’t received the loans above?
Maximize revenues. Try to come up with other ways you can generate revenue. A restaurant offering pickup meals is one example. It won’t be business as usual, and it may not fully pay the rent, but it could lessen the negative financial impact during this unprecedented period.
Keep costs under control. This is a busy time of year for Padgett Business Services and Lemon’s hourly employees often work overtime during this season, earning time and half. Lemons says he’s working overtime, but keeping his staff to their regular hours so that he can spread out the work and the payroll resources and keep staff working on a regular basis. He hopes it doesn’t become necessary to cut hours.
Cut expenses. Lemons adds that if you can’t secure a PPD or EIDL loan, you may have no option but to lay off or furlough employees. They will be able to draw unemployment for up to six months, and the federal government has added a $600 supplement to Tennessee’s typical $275 amount meaning that a worker can draw $875 a week, which equates to an annual income of $45,500. For lower-paid employees, this could even result in an increase in income. It may take three or four weeks for funds to begin, but once approved, they will receive a lump sum covering the time of the delay. Many have questioned whether unemployment funds will run dry, but Lemons expects to see businesses called on to pay in at higher levels first.
Share helpful information with others. Small businesses can also share helpful information that their employees can act on. For example, if an employee owed taxes last year and did not submit a bank account for their refund check, they can log in to IRS.gov to add it. Without a bank account number for direct deposit, stimulus checks will not be available as fast.