4.21.2020
Navigating the labyrinth of financial services is not for the weak of heart. Even attempting the process requires a deep breath and courage to jump into the water without knowing how deep it is or if there are formations to try and avoid. What’s a business owner to do?
Don’t try to go it alone. Be prepared. Gather your subject matter experts such as your accountant, bookkeeper, lawyer, keep them current on your business status and projections. Know how your bank defines your relationship criteria, including if they consider a sole proprietor a business relationship. Does your bank think a single cash account (checking, savings) establishes a business relationship? Or do they require additional services such as a credit card, merchant processing? Learn how your bank (and banker) define a borrowing relationship. Does your line of credit, or loan (each in the name of your business) qualify you as a business borrower? Do you have the capacity to borrow more per the bank?
Is your bank an approved SBA lender for all programs or a specialty lender for a specific type of funding? An SBA loan must be approved by the issuing bank, and each bank has its own lending criteria. Many would-be borrowers are unaware of what types of lending are available to them. Not all banks, for instance, are an approved SBA 7(a) lender. Without this critical information, you may spend precious time trying to find a lender who would – if they could – help.
Think about your access to information and how you have your financial resources organized. Can you access relevant information promptly? If you use a payroll provider, can you provide your payroll records, payroll tax filings, or Forms 1099? If not, be prepared with bank statements and documents dating several weeks on either side of February 15, 2020 (more detail required for seasonal businesses), a milestone date for specific loan programs. Your ultimate goal should be the ability to grab one folder with your business formation documents, tax returns for the prior two years, and most recent quarterly activity. Finally, keep in mind that per the SBA, for PPP loans, there are no collateral requirements or personal guarantees required.
The Small Business Administration’s (SBA) Paycheck Protection Program (PPP) revealed how a business is structured, and supported drives access to capital. Do you understand the criteria for this program? So many companies were unprepared to compile and present the full documentation required to apply for PPP funding. The PPP program is a direct incentive to keep workers on the payroll. All employees must be on the payroll for eight weeks; money can be used for payroll, rent, mortgage interest, or utilities. This loan has a maturity of 2 years and an interest rate of 1%. Loan payments will also be deferred for six months. Proceeds may be forgiven under certain circumstances, at least 75% of the forgiven amount must have been used for payroll. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.
Check out the SBA’s checklist and review the application so that you can organize your documents and have them at the ready. For the PPP program, you must be able to verify payroll, have documentation as well for covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks following this loan. For a traditional SBA 7(a) application package typically includes a personal financial statement, three years of business and personal tax returns, the SBA–required forms, information about all owners, and an explanation of how a loan will help the business.
If you didn’t get funding this round, you might be able to submit for the next shot quickly. Most importantly, you will be prepared. Treasury Secretary Steven Mnuchin wants Congress to approve an additional $484 billion to provide loans and grants to companies with fewer than 500 employees, but lawmakers remain in disagreement over stipulations. The head of the Atlanta Federal Reserve Bank said Thursday US small businesses might need up to $500 billion a month during the coronavirus crisis. Let’s hope Ashley Bell, the SBA regional administrator in Georgia, can influence the focus of forthcoming money to the most fragile enterprises. We need barbershops, nail salons, and other “mom and pop” shops and businesses — who were not able to get access before the money ran out in the first round. The next round may even have additional requirements, such as showing a substantial loss of revenues due to the Coronavirus. Be prepared and be aware: the next round will likely cover hospitals and additional testing. You’ll be midst enterprises trying to save lives and get us out of this situation. Hang in there!