As the feds roll out another round of funding geared to maintain some economic stability in the American economy, small business owners cling to the hope that they can grab a piece of the funding this time. The first $349 billion earmarked for small businesses ran out in fewer than two weeks.
The second wave of relief funding in late April, a $484 billion relief package touted as possibly the last stimulus package from the feds, includes $310 billion for the wildly popular Paycheck Protection Program (PPP). Expect to see the same rush to apply for the money as the first round, when applications overwhelmed the government the day the funds were released in mid-April.
What’s Different This Time?
The first small business stimulus funding was supposed to be allocated on a first-come, first-serve basis, regardless of the amount requested, but everyone knows it wasn’t. The Small Business Administration (SBA) manages the government loan and grant programs under the CARES Act. It was unclear whether the PPP and other small business loan funds can be disbursed more equitably than they were last time. Landing government assistance takes resources, and small businesses remain at a disadvantage to corporations. Plus, it’s difficult to get everyone to do the right thing.
What’s different now is that the watchdog groups are out in full force. Plus, savvy small business owners have learned some crucial lessons. While the government can’t dramatically change the system or the rules because there just isn’t enough time, small business owners can take steps to improve the odds of getting a share of the pie.
Where’s the Money?
The first and most important step in securing PPP funds for small businesses is to call on your banker. The primary reason larger banking customers got quicker approval in the last round—and were possibly pushed ahead of other requests—was because banks are always eager to curry favor with their largest depositors. Additionally, banks have a built-in incentive: the bigger the loans, the heftier the fees they pocket.
The takeaway? Companies with an ongoing relationship with a bank are more likely to have their phone calls answered and their applications pushed through. If you don’t have your banker on speed dial, look now for a local lender with access to SBA funding programs. Online banks, credit unions, and small hometown banks work harder for you in the hope that you’ll continue banking with them when all is said and done. The administration has promised to open access for smaller financial entities.
Your Best Next Move
New applications likely will flood in beginning shortly after midnight on the first day the new stimulus package goes live. Once you’ve communicated with your banker, talk to an experienced accountant about the wisdom of jumping into that quagmire. If an eight-week reprieve on payroll obligations helps you stay open even after quarantine rules slacken, then your patience and preparation may pay off.
Small business owners with an SBA guarantor number don’t have to reapply; just reopen the request. Otherwise, get ready to sit in the queue with your previous bank for approval. The PPP, the most popular benefit for small businesses, allows businesses with fewer than 500 employees to borrow up to $10 million to maintain their staffs. And if you use 75% of your loan to rehire or keep employees, the loan is forgiven for eight weeks of those expenses. The SBA just released the loan forgiveness application and instructions.
And There Are Other Options
The latest round of relief funding earmarks about $310 billion for PPP and is expected to be exhausted as quickly, if not sooner than the first batch. Another $30 billion is included for federally insured banks and credit unions to make SBA-backed disaster loans. There’s $10 billion going to reload the Economic Injury Disaster Loan (EIDL) program that made $10,000 in forgivable funds upfront available within three days to borrowers who met the guidelines.
Hospitals and organizations involved in Covid-19 testing are set to receive additional funding during this next round of relief. If you miss these new opportunities, consider other funding sources to keep your small business alive as you wait out the lockdown:
- Employee Retention Credit is an alternative to the PPP. By taking this, you’re no longer eligible for PPP, even if more funds become available. But the employee retention credit is money that shows up on your books right away. You can file for up to $10,000 for each employee. This is a refundable tax credit you can claim against some employment taxes. You get the funds by reducing your employment tax deposits and you can get an advance if your deposits don’t equal your tax burdens.
- Local and state coronavirus resources. Many local governments put together small business loans and grants to help keep their communities afloat. The small business advisor site fundera.com keeps an updated list of these projects. You can also check your municipality’s website for funding opportunities.
- Crowd-funding. Sources like GoFundMe and IFundWomen provide platforms on which you can call on your fans, friends, family and funders to donate to your business. If you just ask those who want to see you stay open, they very often help. Rely on your social media accounts for maximum exposure.
- Venture capital. If you’ve started talks with investors, but were hesitant to give up any control of your business, now may be a good time to check back in. There is money out there, and you may even be able to work out better terms while venture capitalists are out trolling for sure-thing investments.
- Traditional lines of credit. While you may not be in the mood to take on any credit in uncertain times, interest rates that run between 5.5 and 8% might be the way to go to ensure better days ahead.
No matter which option you choose, keep your accountant in the loop. No one knows where you’re vulnerable better than the person who manages your business finances. That person can provide valuable, up-to-date advice on which funding options are best for your unique needs.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Paul Miller of Miller & Co. LLP is a CPA and can be reached at https://www.cpafirmnyc.com/.