Millions of small business owners in America are hurting right now, due to the unprecedented financial carnage brought on by the coronavirus outbreak. The pandemic has caused countless companies to cut employees and many others to, at least temporarily, close their doors.
It’s also led to a number of clients and potential clients reaching out to our team at MISSION Accounting on how the recently-passed $2.2 trillion stimulus plan can help them weather the storm. The process can be confusing, along with how the new loan program separates itself from existing Small Business Administration loans.
That’s where MISSION Accounting comes in.
Our team has the expertise and size to not only guide your business through the loan process but to also develop a comprehensive game plan for moving forward after your SBA loan has been approved.
How the Paycheck Protection Program Works
The federal government’s stimulus plan has set aside nearly $350 billion to help small businesses via SBA loans.
The program, titled the Paycheck Protection Program, aims to get cash to small businesses as soon as possible. With employers having to make important payroll decisions this month and in the months ahead, the program is looking to incentivize businesses to keep employees on their payrolls. One way it’s doing this is by offering loan forgiveness for companies that keep their employees on their payroll.
Here are the basics you should know: The SBA turns to a network of 1,800 approved lenders for its small business loans. It’s important to check if your current bank is an SBA-approved lender; if so, you will go through your bank when applying for your company’s loan, and if not, you can contact the SBA to find a connected bank. The new program has removed some of the red tape that typically comes with other SBA loans, but it still requires a fair amount of company records.
Loans via the Paycheck Protection Program may end up being much larger than current SBA loans. The PPP will offer up to $10 million to cover payroll and other expenses; for comparison, the average loan amount in 2018 was about $425,000, per the SBA, and its maximum loan was up to $5 million.
Here’s a look at the SBA’s sample application form for the PPP.
Is My Small Business Eligible for a PPP Loan?
You’re probably asking at this point, “Is my business eligible?”
The answer is yes, if you are a small business with 500 employees or less. The loan will also cover certain nonprofits, tribal businesses and veterans organizations that fall under the same threshold. You are also eligible if you are self-employed or an independent contractor; firms must have been in business as of February 15,2020 to be eligible.
What Is the Time Period Covered by the Loan?
The PPP loan covers expenses from February 15, 2020 through June 30, 2020. Recipients can select an 8 week period they want to have their loans to cover, starting as early as February 15.
Applications for the loan are open through the end of June — but as usual with government issued loans, it is first come, first serve, so applying sooner rather than later is important.
What Are the Interest Rate Terms?
As mentioned earlier, the government is looking to incentivize businesses to keep employees on their payroll. Each company will be different, but the loans can be forgiven if used for qualifying expenses.
On the other hand, the maximum terms for the loan include an interest rate capped at 4% across a 10-year period. The loan is fully guaranteed by the SBA. Payments are deferred for a minimum of six months and up to one year. There are also no fees attached to the loan, and personal guarantees have been waived.
How Much Money Will I Need to Borrow?
This may sound like an obvious question, but without fully understanding your expenses, outstanding accounts receivable, accounts payable, along with other future business operation costs, it’s easy to under or overestimate the amount needed.
One thing to keep in mind: Loans affect your credit score, and the more you borrow the more you pay towards interest. A loan is interest-bearing debt on your balance sheet, so borrowing more than you need has long term implications to consider. Borrowing too little can be even more troubling long-term, however, so understanding your business’s financials is imperative. This makes it easier to create a plan and secure the right amount of funding to execute against that plan.
What Information Will I Need to Provide?
For typical SBA loans, the application process is long and difficult to navigate. The approval process can take months and require strong credit history, collateral and financial records.
As mentioned earlier, the recent stimulus package has made it easier for businesses impacted by COVID-19 to apply. The package helped loosen some of the loan requirements, simplified the application process and accelerated the approval process.
Although the process laid out during this time is designed to make it easier for businesses to acquire much needed capital, you will still need to provide accurate business financials. If your financials are not in order, now is a good time to employ the right tools (or use them to their full capacity if you already have good tools) and get a good process in place to maintain accurate records and begin to truly understand your business costs and needs.
The specifics around the recent additions to available SBA loans may differ from traditional SBA loans, but generally, it’s important to answer questions about whether your business is profitable; if not, it’s important to show whether you’re on the right path to profitability.
Surprisingly, even when it comes to those basic questions, many small businesses have a hard time answering. It’s one of the reasons our clients hire us — not only to set up their QuickBooks software, “clean up” their books or train their staff to input information properly, but to advise them on running a successful and profitable business. We do this by helping our clients know if they’re on the path to profitability, where to invest in their business and how to best utilize business loans.
Which of My Costs Are Eligible for Payroll?
A number of costs are eligible to receive help via PPP loan.
- Compensation, including salary, wage, cash tips and commissions
- Payments related to: vacations, medical expenses, and sick leave, along with parental and family leave
- Group health benefits
- Retirement payments
- Payments tied to local and state taxes based on the compensation of employees
Costs that are not covered include employee or owner compensation of more than $100,000. Certain taxes under the IRS code are also not covered, and a few other unique situations, including employees working outside the U.S. MISSION Accounting can help fill this picture in when it comes to applying.
Are There Other SBA Loans I Should Be Aware Of?
The PPP isn’t the only loan that is worth considering during this difficult time. The SBA has been offering loans for more than 65 years, and SBA loans come in a myriad of different forms.
One loan that is particularly applicable, though, is the Economic Injury Disaster Loan, or EIDL. An EDIL covers up to $2 million, and is available to small businesses with 500 employees or less. The loan is also available for self-employed workers and non-profit organizations.
(Here’s where you can find the SBA’s EIDL application.)
What Should I Know About the EIDL?
EIDLs, like many SBA loans, can take a bit of time to process. But time is of the essence right now, so under the new stimulus plan passed by congress, an emergency grant of $10,000 is issued to any business that currently applies for an EIDL.
The $10,000 grant is sent to business owners within three days of filing their applications, and this grant is able to be kept — whether they qualify for an EIDL or not. If your business qualifies for a PPP loan, as well as an EIDL, your $10,000 grant will be deducted from the amount forgiven by your PPP loan.
EIDL loans can be used for a variety of business expenses. The key is to prove economic injury to your business. After this, however, the EIDL can be used for payroll, rent, debt payments, and other expenses.
Interest rates for EIDLs are pegged at 3.75%, and can be stretched out over the course of 30 years. (Non-profit organizations are eligible for a smaller interest rate, it should be noted.)
You can learn more about the SBA’s various relief programs by visiting its COVID-19 resource center.
Why You Should Partner With MISSION Accounting
Applying for an SBA loan can be a daunting task. The application process, after the initial queries, can quickly dive into a number of questions on revenue, expenses and overhead; these can be difficult to answer succinctly and in a way that fits the application’s required formatting.
MISSION Accounting, however, has helped a number of clients with their SBA loans and is prepared to assist with new loan applications related to COVID-19. Our team’s Quickbooks and financial expertise allows our professionals to quickly file on behalf of existing clients, since we are doing their bookkeeping on an ongoing basis. Quick is the keyword here: with business and payroll decisions bearing down, companies will be looking to act fast when it comes to their loan applications — and we’re here to help make it as easy as possible.
At the same time, it can be difficult for companies that have not kept the most organized records to apply for SBA loans. That’s alright, though, because we want to help new clients through this harrowing time.
Our office has years of experience with SBA loans and understands exactly what lenders and individuals reviewing your applications will be looking for. For example, when it comes to expenses, exercising good judgment on what makes sense to include versus not include is paramount. Your application needs to be realistic, dynamic and reasonably substantiated when it is filed.
MISSION Accounting can play a critical role in translating the source information — whether it’s from Quickbooks, tax returns or other financial ledgers — into data that will directly apply to your loan form.
If you’re looking for a firm to help you through the SBA loan application process and beyond, be sure to reach out to us today.