Since the first round of PPP loans, there has been much confusion and debate surrounding the eligibility requirements. Much of the debate focused on getting funding to the small businesses who need it to survive the economic impact caused by the COVID pandemic. The latest round of relief funding opened a month ago and contains significant changes to the PPP loan eligibility requirements. However, in a White House statement on Monday, February 22, 2021, the Biden-Harris administration released a statement containing further revisions to these requirements.
The latest revisions to PPP loan eligibility are designed to promote further equitable access to relief funding. The goal is to get PPP funding to the smallest businesses, many of which were passed over the first time around. These new guidelines are as follows.
This exclusive 14-day application period begins on Wednesday, February 24, 2021. According to the White House statement, 98% of small businesses meet the requirement of having 20 or fewer employees. These are the small ‘Main Street’ businesses that make each town unique and provide a livelihood for the owners and their families. Even with the less stringent requirements of the latest round of PPP funding, these small ‘Main Street’ businesses often struggle more to gather the necessary paperwork and secure relief funding from a lender. The purpose of the 14-day exclusive application period is to allow lenders to give their undivided attention to helping the smallest of businesses to secure the funding they need. The Biden-Harris administration has stated it will also make a sustained effort to work with lenders and small business owners to make sure small businesses truly benefit from this exclusive two-week window.
Non-employee businesses include sole-proprietors, independent contractors, and self-employed individuals such as home repair contractors, beauticians, and small independent retailers. These types of businesses represent a large portion of all businesses, however, they are structurally excluded or approved amounts as little as a single dollar due to the way PPP loans are calculated. To address this issue and provide non-employee applicants with more relief funding, the Biden-Harris administration will revise the loan calculation formula and establish a $1 billion set aside for businesses in this category without employees located in low- and moderate-income (LMI) areas.
Previously, business owners with non-fraud felony convictions were excluded from PPP loan eligibility. If at least 20% of the business is owned by an individual with either: (1) an arrest or conviction for a felony related to financial assistance fraud within the previous five years; or (2) any other felony within the previous year the business would not be eligible for a PPP loan. In an effort to expand PPPloan eligibility and access, the Biden-Harris administration will adopt bipartisan reforms included in the PPP Second Chance Act. This would exclude the second restriction mentioned above about having a felony in the previous year unless the applicant or owner is incarcerated at the time of the application.
In the initial round of PPP funding, a business with at least 20 percent ownership by an individual with a currently delinquent federal debt, including a student loan, wasn’t eligible. Unfortunately, there are millions of Americans with delinquent student loans. According to the White House statement, the SBA is working with the Departments of the Treasury and Education to remove the student loan delinquency restriction and broaden PPP loan eligibility.
Although the PPP statute is clear that all lawful U.S. residents may access the program, there has been inconsistency in access. This was caused by a lack of guidance from the SBA that those with Individual Taxpayer Identification Numbers (ITIN) could qualify for PPP loan eligibility. ITIN holders include those individuals with Green Cards or who are in the U.S. on a visa. According to the White House statement, the SBA will address this issue, providing clear guidance going forward that applicants who are otherwise eligible cannot be denied access to PPP relief because ITINs are used to pay their taxes.
In the White House statement issued by the Biden-Harris administration, the President and Vice President outlined future efforts to make sure PPP relief funding is reaching those small businesses that need it most. These include the following and are detailed in that statement.
In addition to providing alternative business funding options, CapFlow Funding Group is making every effort to provide our clients with the information they need to navigate the economic impact of the COVID pandemic and prosper despite it. Contact us today to find out how we can help.
There’s no getting around it. The COVID pandemic has forever changed the way we do business. Even when all the vaccines have been administered, restrictions have been lifted and the threat of the disease has been put to rest, what we consider normal will be different. This especially true for retailers, restaurants, companies that rely on technology, and more. While many small businesses have been focused on surviving the economic impact of the pandemic, now is the time to plan for post-COVID business recovery. This will involve taking the stopgap measures business owners implemented on the fly and determine how to integrate them to revise their current business model. They will need to develop a new strategy for conducting and marketing their business. Here are some of the common business recovery challenges business owners are dealing with.
You may have only dabbled in eCommerce before the pandemic or maybe you were strictly a brick and mortar business. Moving forward, eCommerce sales could become a major source of your revenue. Everything from luxuries to essentials can be found online. What began as a way for consumers to safely purchase goods during the height of the pandemic, has become a matter of convenience for many.
With online shopping, consumers aren’t spending time driving from store to store to get the items they need. Many businesses that have physical locations make it possible to see if the item is available at a nearby store, eliminating wasted trips if you need it in a hurry. Entering the eCommerce marketplace provides consumers with access to your business 24/7 from anywhere. The importance of eCommerce should not be underestimated when developing your business recovery strategy.
Digital and social media marketing are crucial for post-COVID business recovery even if your business only has a physical location. A website and strong online presence are no longer optional if you want consumers to find you – they’re a necessity. Showing up on page one of a Google search or ads and positive reviews on Facebook can be the difference between standing out from your competitors or getting lost in the crowd.
However, getting to the first page of a Google search won’t happen just because you have a website or eCommerce store. Much like in the advertising world of Mad Men, digital and social media marketing takes research, analysis, and a bit of creative genius to develop a strategy to reach the consumers interested in your products or services. Unless a business owner has a lot of extra time to tackle their own marketing efforts, they may need to hire a professional agency to handle it for them.
When the pandemic first hit, employees that could work from home were allowed to without much thought given to supervision or the security of the intellectual property. It wasn’t long before both employers and their employees began to realize the benefits of a remote workforce. Businesses were able to reduce or eliminate the overhead of a physical office space. Employees spent less time commuting, discovered a better work/life balance and the majority became more productive.
However, as the remote workforce becomes more the norm, supervision, communication, and security all become issues that need to be addressed. Remote productivity, online conferencing, and intellectual property security all require specific technology. Understanding what is needed and implementing the right solution may be outside a business owner’s wheelhouse. Unless you have some IT experience, hiring a business It specialist to consult with and implement the proper solutions will become necessary to strengthen and secure your remote workforce.
When it comes to post-COVID business recovery, streamlining curbside pickup and delivery is essential for many retailers and restaurants. While some have successfully implemented these practices, many businesses still have work to do. The convenience factor of these services is going to continue to be important to consumers, even after COVID.
Curbside pickup and delivery will require a shift in the workforce that includes more in-store shoppers filling orders, staff dedicated to facilitating these services as well as the appropriate number of delivery vehicles. Delivery also opens up a business to additional liability issues requiring increased insurance expenses.
In many cases, developing an effective business recovery strategy will take more capital than businesses can afford without negatively impacting their cash flow. Traditional bank loans are going to be extremely difficult to secure. So, how do you cover the cost of a successful business recovery strategy?
CapFlow Funding Group may be able to provide the perfect solution. We offer merchant cash advances and invoice factoring and are dedicated to providing the short-term working capital you need to remain competitive in the post-COVID marketplace.
Our merchant cash advances can be a great option for retailers ready to dive into the online marketplace and for B2B businesses invoice factoring can be the perfect solution. We also work with trusted partners to provide other alternative financing options that may be better suited to our clients’ business needs. We service many different industries with a variety of funding needs. Our goal is to find the best funding solution for your business. Contact us today and find out how a merchant cash advance or invoice factoring can fuel your business recovery strategy.
Congress finally agreed on a second stimulus package right before Christmas. The bill signed into law by the president reopened the Payroll Protection Program (PPP) with $284 billion in small business disaster relief funding. The additional funding will allow some small businesses who are still struggling to receive additional funding, referred to as a second draw loan. Like the previous round of PPP loans, these funds have the potential to be forgiven. However, the guidelines to receive loan forgiveness are different from those accompanying the first round of PPP loans and may continue to evolve as the SBA has not yet released their official guidelines. Here’s what we know so far.
Who Qualifies – The second round of PPP loans is sharpening the focus on small businesses. A company must have 300 employees or less to qualify for additional small business disaster relief. This number has been significantly reduced from the first round of PPP loans, which required the company applying for funding to have up to 500 employees. To further ensure that the disaster relief funding benefits small businesses, publicly-traded companies are barred from applying for PPP funds. Second draw PPP loans will be capped at $2 million, again significantly lower than the previous limit of $10 million. Second-time applicants will have to provide documentation that their sales fell by 25 percent in at least one quarter of 2020 as compared to the previous year. They will also need to have used or will use the full amount of their first PPP loan.
Inclusion of Non-Profit Organizations – The original PPP loans were not available to non-profits and other organizations. The small business disaster relief program has been updated to include eligibility for certain housing cooperatives, news organizations, section 501(c)(6) organizations, and Economic Injury Disaster Loan (EIDL) recipients.
How is the Loan Amount Determined? – For most applying for a second round of small business disaster relief funding, their 2019 average monthly payroll is multiplied by 2.5. This will provide applicants with enough funding to cover 2 ½ months of payroll expenses. Restaurant and foodservice businesses that are classified under the North American Industry Classification System (NAICS) beginning with the number 72 will have their loan amount calculated differently. They will have their 2019 average monthly payroll multiplied by 3.5, providing them with a larger loan amount to cover 3 ½ months. If a small business has an average monthly payroll expense of $1000, once approved you would receive $2500 in funding. A restaurant or foodservice business with the same payroll expense of $1000 would receive $3500.
Forgiveness Eligibility – Those receiving the small business disaster relief funding from the reopened payroll protection program will still be required to spend 60 percent of the funds received to cover payroll expenses. However, there are new guidelines for how the remaining 40 percent can be spent. Originally earmarked for expenses such as mortgage, rent, and utilities, the balance of the PPP loan can also be spent on the following eligible expenses.
The forgiveness process has also been simplified for loans of less than $150,000. A signed,one-page form attesting that the money was used for its intended purpose is all that’s required for PPP loans below this amount.
Taxation Updates – The first round of PPP loans were considered to be tax-free as long as they are forgiven. However, normally deductible expenses paid for with PPP funds, could not be claimed as a deduction. So, those funds were being taxed indirectly. Among the changes to the requirements and regulations governing the new round of small business disaster relief funding, forgiven PPP loans are completely tax-free. This means normally deductible expenses paid for with PPP funds can still be claimed as a deduction.
At CapFlow Funding Group, we understand that while a second draw PPP loan can be a financial lifesaver for many small businesses, navigating the rules and regulations to qualify for loan forgiveness can seem daunting. In an effort to assist our clients and other business owners, we continue to provide updates and the latest information relating to the PPP Act. Keep in mind, the Payroll Protection Program will close again on March 31, 2021.
While the pandemic has drastically altered the economic landscape, we will do our best to help our clients not only survive but successfully rebound in the” new normal”. Contact us to see how our alternative funding options may be able to help.
Since the onset of the COVID-19 pandemic, there have been a few different SBA funding options made available to help small businesses survive the economic downturn. One of them is the EIDL loan (Economic Injury Disaster Loan). Much like the PPP (Payroll Protection Plan), the EIDL loan is surrounded by some confusion, especially about how it can be spent. Our goal here is to cut through that confusion and explain how this type of loan works and how to spend it.
The EIDL is a loan extended to small businesses, qualified agricultural businesses, and non-profit organizations that have experienced a loss of revenue due to COVID. Unlike the PPP loans and EIDL Advances that preceded it, the EIDL loan is not forgivable. It is a low cost, long term 30-year loan with fixed interest rates of 3.75% for businesses and 2.75% for non-profit organizations. The purpose of this loan is to help these businesses and organizations meet the financial obligations of normal operating expenses.
Unlike the PPP loan and the EIDL Advance, you can still apply for an EIDL, but not for long. The deadline to apply is December 21, 2020. EIDL applications that have already been submitted are being processed on a first-come, first-serve basis.
According to the SBA, an EIDL is to be used to cover “reduced working capital, increased expenses, cash shortage due to frozen inventory or receivables, accelerated debt, etc. EIDL proceeds can only be used for working capital necessary to carry the concern until the resumption of normal operations and for expenditures necessary to alleviate the specific economic injury.”
Admittedly, this explanation is a bit vague. While this is not an official SBA definition, working capital loans are generally used to pay the daily operating expenses of the business. These might include salaries, inventory, rent, utilities, and short-term debt or long-term debt payments.
EIDL loans are not the result of the COVID pandemic. They have been part of the SBA’s Disaster relief program for years. Their SOP for disaster loans provides some insight into how an EIDL can be used.
To-date Needs – These include normal financial obligations already incurred and the business is presently unable to pay. They are typically listed as liabilities on the most current post-disaster balance sheet. They include funds required to make delinquencies current and to restore working capital to normal levels.
Future Needs – These are normal financial obligations the business would be unable to meet throughout the remainder of the injury period. They can sometimes be a continuation of the to-date needs. Some examples are:
Extraordinary Needs – These fall outside of normal operating expenses and are directly caused by the disaster. They can include:
Here is an overview of ways that an EIDL loan can NOT be used.
If you are unsure of how you can use EIDL loan funds, it is best to consult with your business accountant or contact the SBA directly. Here at CapFlow Funding Group, we are doing our best to provide our clients with the information and resources they need to not only survive but rebound once the virus is contained and the restrictions are lifted. If you are interested in applying for any of our funding options, please contact us to discuss the possibilities.