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There is just over a week left of priority access to the Paycheck Protection Program’s forgivable loans for the owners of the nation’s smallest businesses.
Last Wednesday, the Small Business Administration started only accepting PPP loan applications from firms with fewer than 20 employees. This priority period is set to last two weeks before the program opens back up to the rest of the small-business community.
“Whenever there is a deadline, people feel this pressure,” said Melissa Bradley, co-founder of mentorship tech platform Ureeka, which is now helping small businesses wade through the PPP application process.
“Don’t do it blindly,” she added. “Be an opportunist but not opportunistic.”
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While Bradley appreciates the two-week window, she thinks it isn’t a lot of time for entrepreneurs to get their paperwork in order and do their research. She’s concerned many of the business owners who could benefit from the prioritization are not properly prepared and have historically lacked access to the type of support that could help them.
There is also some guidance yet to come from the SBA, which is expected to update its formula this week for sole proprietors. It is expected to shift eligibility calculations based on net profits to gross income.
“The change … is going to have likely an impact as likely as much as 10 times or more of the loan size,” said Sam Sidhu, chief operating officer of Customers Bank, which is headquartered in Phoenixville, Pennsylvania. Approximately 70% of its loan volume is first-time PPP customers.
“That will help those who need the money the most,” he added.
Customers Bank is holding off funding those loans until the SBA releases its guidance.
Here are strategies to help you navigate the process — before, during and after your application.
Whenever you take on a financial obligation, read the fine print, Bradley said. Download the application and pay close attention to the terms.
Also, review everything that has been written about it, including news reports. The SBA details first- and second-draw loans and loan forgiveness, and documents frequently asked questions on its website, as well.
It also means staying tuned into any changes or adjustments made in the legislation down the road.
Get your financial house in order
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Make sure your account statements are up to date and have an accountant look over them.
Then, think about the amount of money you’ll ask for in the application. Typically, women and entrepreneurs of color have a tendency to request loan amounts they think they can get, instead of what they need, Bradley said.
“Make sure you are asking for enough not only to survive but to thrive,” she said.
Once you figure out what you need to thrive, do another financial analysis that takes into account your ability to repay the loan if you need to do so, Bradley advises.
For the loan to be forgivable, 60% must be spent on payroll. Under current rules, sole proprietors can use it to pay themselves, limited to an eight-week period of their 2019 net profit. Yet the updated guidelines expected from the SBA may impact that.
“There isn’t a level of clarity of what is going to be required and how loan forgiveness is going to be calculated,” Bradley said.
Once you get the loan, make sure you are tracking how you are using it and hold onto any documents, so when the window opens for when you apply for forgiveness you are not wasting your time gathering information and documentation, she advised.
Filling out the application
When it’s time to fill out the application, make sure you pay attention to all the small details. Have your tax return information and other documentation in hand and organized.
Here are other tips, courtesy of Customers Bank:
- Answer the questions exactly.
- If this is your second loan, get the SBA number of your first loan correct.
- Get the amount correct.
- Get the lender name correct.
- Know your North American Industry Classification System (NAICS) code and enter it correctly.
- Understand the difference between W-2 employees and 1099 employees.
- Get your payroll numbers organized.
- Make sure you have the correct incoming routing number for the bank account to which you want the loan deposited.
Just remember that if you get the loan, until it is forgiven, it will appear as debt on your balance sheet, Bradley warned.
“So you do have to understand how debt will impact any future financing rounds until a loan is forgiven.”
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.