Month: August 2020

SBA 8a Certification: What Is It, Its Benefits, and How to Obtain It

August 27, 2020

The goal of the federal government is to award a minimum of five percent of all federal contract spending to small, disadvantaged businesses every year. One way this is done is with 8a certification.

What does it mean when you hear someone mention a company has earned 8a certification? It means the business has applied for the SBA 8a Business Development Program and it is recognized as being eligible for the 8a certification. This is because it meets all the prerequisites of the SBA loan program.

Before moving into how to get 8a certification, it is essential to review what the SBA 8a Program is.

Explaining the SBA’s 8a Business Development Program

This program is run by the Small Business Administration (SBA) to provide help to small, disadvantaged businesses. The goal is to help these businesses acquire governmental contracts. As mentioned above, the goal of the government is to award a minimum of five percent of all contracts to these eligible companies.

You may wonder what “disadvantaged business” means. This is an organization that is unconditionally controlled and owned by one or several people who have been defined by the SBA as being economically and socially disadvantaged.

To qualify, the individuals must be members of a specific group, such as Hispanic Americans, Native Americans, or African Americans, or they have experienced social disadvantage because of physical abilities, gender, origin, race, or similar attributes.

Also, these individuals must not have any type of an economic advantage.

Benefits Offered by 8a Certification

Becoming eligible for the 8a program offered by the SBA and qualifying for the 8a certification requirements is something that can be lucrative. If you are eligible, you will receive specific privileges.

For example, your business will be eligible to receive government contracts that are set-aside. This means there is low competition for them and that it is limited to small businesses only. Also, you can access a sole-source contract. These are contracts that have virtually no competition.

Another benefit offered by 8a certification is access to a Business Opportunity Specialist from the SBA. This professional can help guide you through the entire SBA 8a application process. There are a variety of training programs along with technical and marketing help that is provided to disadvantaged businesses as well.

Steps to Earn 8a Certification

Before you can receive all the benefits offered by 8a certification, you have to qualify and meet the eligibility criteria.

The qualifications for 8a certification require the use of an eligibility test. The specific criteria for this include:

Small Business

This program is strictly for small businesses! You need to have a three-year average revenue that does not exceed the government-set limit.

First Time Participant

Receiving 8a certification is a one-time process. If you already have this certification or if you have participated in the program in the past, you will not be eligible to apply again.

Disadvantaged

You must have a disadvantaged business. This means that the business is both owned and controlled (i.e., 51% ownership) by economically and socially disadvantaged people.

Someone who is considered economically disadvantaged must be a U.S. citizen, and they must have an adjusted gross income for the past three years that is $250K or less. Also, the true value of their assets cannot exceed $4 million.

The Principal Owner Must Exhibit Good Character

To receive an 8a certification, the business’s owner should not have a criminal record. They must not have violated any SBA loan programs in the past. They should also not have been in prison or otherwise due to a conviction or a guilty plea.

Also, if you knowingly submit any false information to receive 8a certification, you will be disqualified for the program.

The Potential for Success

You must show the potential for success. What this means is that your business should have been operating successfully for approximately two years and primarily in the industry where you would like to receive the 8a government contracts. Examples are within the temp agency and security guard company industries.

You must have a company that is not in debt and have enough capital as well as other capabilities (equipment, personnel, etc.) to handle the GSA contracts.

Tips to Apply for an SBA 8a Certification

Before moving forward with SBA 8a certification, you have to register with SAM – the System for Award Management. This is a required step and is how you receive credentials to log into the proper website to begin the application process.

Creating the SAM account means your business is officially registered, has a TIN or EIN to pay taxes, and has a D-U-N-S Numbers.

Before registering, you need to gather all the required documents related to your business. Some of the documents necessary for the 8a certification process include:

Personal history statements
Bank statements
Business and personal tax returns
Financial statements

It is also important to note that the SBA may request other documentation to determine your eligibility. Once you have gathered the needed documents, you can begin the application process to see if your business is eligible for 8a certification.

SBA 8a Certification: Does Your Business Qualify?

There is no question that obtaining an SBA 8a certification provides you with a list of benefits. However, the application and qualification process are often difficult.

If you are looking for more information about loans and financing options for your business, be sure to check out some of our other blog posts or use our “apply now” feature to see what you can qualify for.

Our goal is to provide information about business loans and services that will help ensure your business continues to grow and succeed.

A Practical Guide to a Leveraged Buyout (LBO)

August 11, 2020

Leveraged buyouts (LBOs) have gathered a lot of notorious press. However, according to economists, a leveraged buyout is still an important company acquisition tool.

The leveraged buyout model is an interesting one and something that all investors should know about.

Although potentially profitable, leveraged buyouts also come with a high level of risk. Therefore, it is important to find out everything you can about this unique acquisition method before taking action. Otherwise, you may lose assets rather than build them.

If you want to get savvy about leveraged buyouts, keep reading for a practical guide to LBOs.

What Is a Leveraged Buyout (LBO)?

So, what is a leveraged buyout?

A leveraged buyout is the acquisition of a company through the use of borrowed funds. High leverage is utilized, generally 90% and above. The assets of the company are often given as collateral for an asset-based loan.

The loan repayments are paid back by the company.

This has a unique advantage that the borrower does not need to provide collateral or much capital. What’s more, the company is responsible for meeting the loan payments.

However, the drawback to the leveraged buyout model is that such high leverage also involves a certain amount of risk. If any problems occur while running the business, and cash flow issues develop, the company may not be able to make the loan payments. If the company defaults on the loan that bought it, its assets may be seized, causing a loss to the investor.

The History of Leveraged Buyouts

Leveraged buyouts underwent a surge of popularity in the 1970s. During this time favorable economic factors made it easy for investors to secure leveraged loans.

During this time, and on into the 1980s, large corporations ate up smaller companies on this wave of easy credit. Combined with the history of junk bonds and leveraged buyouts, this caused many to view LBOs as an unsavory acquisition method.

Added to this was the fact that some investors saw an opportunity to split up acquired companies and sell the pieces for a profit. This was generally of detriment to the company, impacted jobs, and was only good for the investor’s pocket.

However, leveraged buyouts are not just a corporate raiding mechanism. In fact, some of the most successful, well known, and trusted brands today, such as Heinz, were acquired through an LBO.

Leveraged Buyouts Today

In favorable economic periods, leveraged buyouts are still abused in some cases today. However, they are also a legitimate acquisition method.

What’s more, leveraged buyouts are not only used for large companies. An LBO can also be used to effectively acquire and improve smaller companies.

Let’s now take a look at the basic steps to completing a leveraged buyout.

How to Do a Leveraged Buyout

Leveraged buyouts are typically complex procedures. However, the basic method for going about an LBO is simple.

The first step is to vet out potential companies to acquire. These companies need to be analyzed carefully, funding needs to be found, and a financial structure needs to be chosen for the LBO.

Look at Potential Companies to Purchase

Initially, a list of companies that have the potential for an LBO needs to be compiled. To satisfy lending requirements, companies need to have a specific ratio between cash flow, assets, and asking price.

Firstly, for a company to be suitable for a leveraged buyout, it needs to have sufficient cash flow to cover the debt payments. In many cases, the cash flow will need to be used to service senior debt, junior debt, subordinated debt.

What’s more, the assets the company holds need to be enough to underpin the loan (as these serve as the collateral).

Lastly, the price of the company also needs to be justified by the company’s assets and cash flow. Furthermore, investors may have specific criteria for which companies they want to acquire.

Some investors may wish to focus on companies in distress that can be rapidly improved. Others may wish to acquire within a certain sector or only invest in businesses that are running soundly.

Analyze Cash Flows

To effectively analyze a company’s cash flow, investors need to look at operating cash flow and working capital.

Working capital is calculated by deducting current liabilities (such as loan payments and accounts payable) against current assets (such as accounts receivable and inventory).

Operating capital is measured by combining net income with non-cash expenses and changes in working capital. It is very important to look at these company metrics, as any disruption in cash flow could quickly compromise an LBO.

Estimate a Reasonable Offer

As mentioned above, it is essential that the offer amount in a leveraged buyout be in line with a company’s assets and cash flow. If the offer amount is too high, this can cause the loan repayment to be too large for the company to meet.

Some investors will want to look at getting a minimum return on their investment. Others may wish to secure a maximum payback period. This model aims to regain their money within a set timeframe.

Decide on a Financing Structure

Another important step is to decide on a financing structure. Financing structures for leveraged buyouts are typically complex, especially in larger acquisitions. If this is unfamiliar territory for you, you will want to speak to your CFO and discuss the advantages of multiple layers of financing versus a single layer.

Do You Need Capital for a Leveraged Buyout?

Are you contemplating a leveraged buyout? If so, not only will you need the right company with a balance between cash flow, assets, and price—you’ll also need good financing options at your disposal.

If you are in need of financing, take a look at our business loan types to find one that fits your needs. Start by filling out our 90-second online application. Once this is done you will quickly be matched with tailored loan offers from competing lenders.

If you have any questions about the process, contact us directly and we will be eager to help.

How to Reopen Your Small Business After COVID-19 Lockdowns

August 7, 2020

The Coronavirus has interrupted our lives and shut down small businesses around the country. As a business owner, you may be in a hurry to reopen your business and get things back to normal.

As rules and restrictions continue to ease, it’s important to have a post-COVID-19 plan in place to navigate new ways of doing business. This will help you assess where you are and determine how you can move your business forward to operate in a safe and profitable way.

Here are some ideas you can use as you prepare to reopen your small business.

Assess Your Financial Situation

Before you can move forward, you need a realistic picture of how your business plan has fared during this challenging time. If you haven’t looked at the numbers, it’s time to analyze your profits, losses, and cash flow.

Although many businesses have taken a drastic hit, the damage may not be insurmountable. A realistic plan for the future is the first step for a successful rebound.

Compare the numbers to last year’s data to see where your business stands financially. Before you can formulate a plan, you must consider other ways COVID-19 has impacted your business, including employee layoffs, furloughs, and terminations.

If you’ve shut down completely or had to cut your advertising budget, your customers may have moved on to your competitors. You must consider all of this as you look for the financial resources you’ll need to recover.

Reimagine Your Business Plan

Your business model may have been working great before COVID-19 reared its ugly head, but what was working then may not translate perfectly today. It’s time to consider how your business will adjust to the “new normal.”

If your business relies on foot traffic, you may need to expand your digital presence to increase sales. Take a look at what your competitors are doing and how they’re adjusting to new ways of doing business.

Pay attention to trends in your industry and how you can fill a gap or address a need. Have a realistic picture of the strengths and weaknesses of your business model. What was working before may need tweaking for you to remain competitive with other companies.

Even as businesses reopen and things seem to return to normal, many customers will be hesitant to change or return to pre-COVID-19 practices. If you shifted your business practices to stay open during the pandemic, consider continuing those convenient options for customers as you return to normal operations.

Consider Sources of Funding for Your Small Business

Unless you had a strong cash reserve heading into the pandemic, you’re likely to need additional sources of funding as you attempt to revamp your business’s operations. As you think about financing for your business, there are many loan types to consider.

The SBA is an obvious starting place, and there are many other options as well. Some of these include:

The Paycheck Protection Program
Economic Injury Disaster Loans
Traditional SBA 7(a) loans
Business line of credit
Business credit cards
Accounts receivable financing
Equipment financing
Purchase order financing

Every finance option has its pros and cons. Some options such as accounts receivable financing are useful for short-term financing. But they require leverage. If business is slow, you may have difficulty getting approved.

Alternative financing usually has higher annual percentage rates than traditional business loans or lines of credit. If you are seeking financing at this time, borrowing is competitive. Lenders are looking for reassurance of loan repayment.

Review the financial situation of your business and personal credit score to gauge your likelihood for approval. The good news is there are multiple avenues for funding. You just have to find the right solution for your business needs.

Revisit Your Budget

To get your business off the ground again, you may need to spend some money upfront. You may need to hire and train new employees or rehire former ones. You may need to purchase new inventory or revamp your advertising campaign.

Whatever the need, you have to make decisions about your operating budget. This may lead you to make cuts in some areas or even take a pay cut to get back into action. This could include using personal savings or relying on your spouse’s income to keep your business afloat.

Every situation is unique, so what works for one business may not work for yours. It’s important to take an honest look at your budget and the kind of money you need to move forward.

Create a TimeLine

Getting your business moving again may seem overwhelming because there’s so much to consider. Doing it all at once may not be realistic. Creating a timeline to prioritize your actions is a good first start.

For example, if you have an immediate need for employees, set a timeline to accomplish this first. Then, follow with your list of priorities in order of importance, such as advertising, restocking shelves, and opening your doors. As you move through your timeline, be sure to track your progress.

This is particularly important if you’ve borrowed money. You want to focus on ways to ensure a solid return on your investment. It’s a good idea to review your financials each week at first. As you move back into a smooth routine, keep track of what’s working and how you can continue to grow your business in the future.

Evaluate Remote Work Policies

During the pandemic, many small businesses have ventured into remote work for the first time. And some have found great success with alternative work options. If you find that remote work has been beneficial for your business and your employees, consider retaining remote employees once the pandemic is over.

Decide what tasks employees can manage from home and what should be done on site. Choose employees who work well on their own and set clear expectations for what you expect.

Employees appreciate flexible work options. Working from home is a viable option for individuals who have children at home or other family members to care for. It’s also a good option to help manage social distancing in the workplace.

Plan for Employee Safety

Before you go back to business as usual, you must plan for the health and safety of your employees. Some employees will be reluctant to come back to work unless they know you’re looking out for them.

A safe workplace includes frequent cleanings and extra attention to areas such as bathrooms, counter spaces, break rooms, and other high-traffic spots. You can refer to the CDC’s suggestions for more information about cleaning and disinfecting of public spaces.

Be sure that employees have easy access to masks and gloves if needed. Consider implementing regular wellness or temperature checks to ensure only healthy employees are coming to work. Try relaxing your sick leave policy to discourage sick employees from showing up.

When possible, allow employees to work from home and other remote locations. Educate your employees on the virus and your company’s plan to keep everyone as safe and healthy as possible.

Keep Your Customers Safe

If you’re taking steps to protect your employees, you’re already thinking of your customers as well. If your business experiences high foot traffic, you may need to consider additional ways to protect your customers. Review the local, state, and federal guidelines for capacity limits.

You may need to implement a plan for social distancing. This may require changes to your isles, seating, checkout locations, or more. You may need to install plastic guards in certain areas to limit contact between employees and customers.

Depending on your business, you may want to require customers to wear a mask. In some states, this is a requirement for certain businesses.

To avoid losing customers as they enter your business, consider providing masks at the door. Protect your employees and other customers by posting a sign discouraging anyone who’s feeling unwell from entering your business.

Show Your Humanity

The Coronavirus has affected us all in some capacity. Even in times of struggle, there are still ways for your business to give back to the community. This is good for your community and your brand.

In time, this crisis will pass. For now, we are all learning ways to carry on and grow from this experience.

You may have realized you weren’t prepared for a crisis. Here are some tips for being prepared in the future.

Have a savings account for your business for times of need or disaster.
Have a personal reserve of at least 3 months of living expenses.
Stock up on personal care products and food basics.
Consider new ways to make money or diversify your business.

Reopening Your Small Business

Just like you, many business owners are looking for ways to keep their small business afloat during these trying times. If you are looking for ways to finance your reopening, we’d love to assist you.

Your business needs are our top priority. Contact us today to learn more.

What is a Paycheck Protection Program (PPP) Loan: An Essential Guide

August 4, 2020

Is your small business currently struggling and experiencing loss of revenue? You’re not alone. More than 100,000 small businesses have closed in 2020. The good news is that there are relief programs that you might qualify for to help your small business. PPP loan, or Paycheck Protection Program loans, fund payroll, rent, mortgage, interest, and utilities.

Find out more in our essential guide below!

What is the Paycheck Protection Program, and Do You Qualify for a PPP Loan?

The Paycheck Protection Program, also known as PPP, is a section of the Coronavirus Aid, Relief and Economic Security Act (CARES). This program has designated more than $300 billion for small business loans.

PPP loans are for small businesses to support their payroll and other specific expenses. If you are a small business owner, you may be able to receive a loan for up to 2.5 times your average monthly payroll. The average is from the year that precedes the application you submit.

Small businesses that qualify for PPP loans need to have been in business before February 15, 2020. Also, a small business is defined as having fewer than 500 employees or otherwise meeting the Small Business Association’s requirements for size.

Additionally, small businesses that are sole proprietors, self-employed people, or independent contractors who regularly carry on a trade or business are eligible. There are also certain hospitality and food service businesses that may qualify for this loan.

Lastly, some non-profits, organizations, and tribal businesses may qualify. But it’s important to know that not every business type is eligible, so it’s important to understand your specific eligibility.

How Can You Apply for a PPP Loan?

The Small Business Administration, or SBA, funded the Paycheck Protection Program with $349 billion. This will provide loans to businesses with the intention of the business to have eight weeks of payroll, along with other costs to help their employees pay their bills.

PPP loans are through lenders that have been approved by the SBA. This means you are able to apply for a PPP loan through any of the participating lenders or another federally insured depository institution. This might be your local credit union.

There are currently 1,800 SBA approved lenders, but the list is still growing. Lenders are able to apply for the program. Start your application by working with a lender in your area and asking if they are participating in PPP.

It’s important to only go through an approved lender and avoid all scams. Also, you should download the application from the SBA website and read through the instructions.

You will need to collect certain documents to prove you are eligible, like the number of workers you employ and the length of time your business has been operating. You should also note you’ll need to prove your average monthly payroll costs.

Understanding the Qualifications

One qualification you may be wondering about is if you need to look for other funds before you seek out PPP.

The SBA has actually waived the requirement that small businesses should get some of the loan proceeds from alternate sources, like a credit union. So, you don’t need to worry about finding another source funds when starting your application for a PPP loan.

If you have other SBA loans, you might also want to know if you can keep those loans and get a PPP loan at the same time. You are able to apply for both PPP loans and other SBA loans that provide financial assistance. This includes the Economic Injury Disaster Loans, or EIDLs.

The only problem here is that you aren’t able to use your PPP loan and the other SBA loans for the same purpose. Meaning, your PPP loan cannot be for payroll if you already have another SBA loan that is providing those funds to you.

Applying for Multiple Loans

As mentioned above, you can also apply for EIDL and a PPP loan. So, if your business has sustained economic loss as a result of COVID-19, you’re able to apply for both loans.

If the EIDL is under $200,000, no personal guarantee will be needed. But the loan is only based on your credit score. Both loans have low-interest rates, but EIDL does not come with loan forgiveness.

While you are able to apply for a PPP loan with multiple lenders, you are only able to receive one loan. Loans given are based on your Taxpayer Identification Number, and each person is only eligible for one.

How Can You Use a PPP Loan?

A PPP loan can’t be for every business expense, so it’s important to understand the purpose of these loans.

These loans can be used for employee salaries, costs relating to healthcare for your business, insurance, and other payroll costs. You can also use a PPP loan for rent, utilities, and interest on debt.

The Paycheck Protection Program is set up so that you are able to use your loan for an eight-week period after the funds are initially disbursed to you. This means you’re able to receive funds for two months after the first amount is in your bank account.

What Are the Loan Details and What is Loan Forgiveness?

The details of your loan, like the means at which you’re expected to pay it back, will be just as important to you as applying for the program.

PPP loans have a 1% interest rate. But the loan will be fully forgiven if the funds are used for the designated reasons. Meaning, if you use your funds for utilities, rent, mortgages, and payroll, you’ll likely have the loan forgiven.

Along with a low-interest rate, loan payments will be deferred for six months. Also, no personal guarantee is necessary. You can also rest assured that your lender will not be able to charge you any fees for a PPP loan.

PPP Loan Forgiveness Details

Whether or not you’re eligible for loan forgiveness is based on rehiring employees. So, the employer’s ability to maintain and rehire employees, along with keeping up with paying payroll, will determine if the loan is forgiven.

The forgiveness option is reduced when the full-time headcount decreases. This is also the case if wages and salaries decline.
In order to receive forgiveness, payroll costs need to be more than 60% of the amount forgiven. Only 40% of the amount that’s forgiven will be able to be used on any expense that’s not related to payroll.

It’s important to note that forgiveness won’t occur until the end of the loan. So, this will be at the end of the 24-week period of employment that follows receipt of the PPP loan.

It is possible that an employee is asked to return to work, but the employee declines the invitation. If this happens, your loan forgiveness amount will not be reduced. This is an exemption that is listed in the CARES Act.

How to Document Payroll for Forgiveness

When you’re using a PPP loan for payroll, you will want to stay highly organized. It’s important to collect the right documents so that you can ensure future forgiveness.

The first set of documents you’ll need when applying for loan forgiveness is your payroll tax filings that were reported to the IRS. You’ll also be required to include the tax filings you have for state income, payroll and unemployment.

Other documentation will include cancelled checks, transcripts of accounts, payment receipts, and anything that shows you’ve covered your mortgage obligations.

Also, proof of covering utility payments will be needed. You’ll also have an SBA Administrator who may request additional documents.

It might be easiest for you to keep funds and expenses for your PPP loan in a separate bank account. This is not a requirement but could help you to keep track of the money coming in and going out during those eight weeks.

Use This Guide to Understand the Basics of a PPP Loan

When your business is struggling financially because of what’s going on in the economy, you’re going to want to receive federal relief wherever you can. A PPP loan could be exactly what you need to continue operating and pay your employees.

These loans come with specific requirements, so it’s important to understand what is necessary to qualify. When you are ready to apply, make sure you use an SBA-approved lender. Also, remember to collect documentation so that you can later apply for loan forgiveness.

Apply now for business funding and learn more about what other business services are available for you!

SBA Paycheck Protection Program (PPP) vs. the EIDL Program

August 1, 2020

The United States economy is still under siege due to the coronavirus pandemic. Southern states like Florida and Texas are now being rocked by the virus. Florida is now reporting over 10,000 positive cases per day. To limit the spread of the virus, these states have no choice but to close businesses once again. For this reason, the U.S. government has extended the SBA Paycheck Protection Program (PPP) until August 8th, 2020.

In addition to the PPP, many businesses took advantage of the Economic Injury Disaster Loan (EIDL) program. Read on for a comprehensive guide to the two loan programs. Explore the benefits of each policy initiative and the striking differences between the two.

What is the CARES Act?

The government recognized the enormous financial burden imposed by the coronavirus pandemic. Months after it reached American shores, millions of citizens are still staying home to promote public health. Millions of businesses deemed non-essential were ordered to cease operations to help prevent viral spread.

In March, the U.S. Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Included in the CARES Act were generous financial benefits for American businesses. Two of these programs are the EIDL and PPP.

What is the EIDL Program?

The EIDL was an existing loan program administered by the SBA. The CARES Act provided an additional $60 billion in funding for this program. Of this total funding allocation, $50 billion was slated for loans and the other $10 billion for emergency grants.

In addition, the CARES Act made more businesses eligible to apply for the EIDL program. This expansion included farms and other agricultural businesses with less than 500 employees.

What is the SBA Paycheck Protection Program (PPP)?

In tough times, businesses look to cut expenses to stay afloat. Payroll is the first place that management evaluates when reducing operating expenses.

The federal government wanted to avoid this from happening. For starters, the situation was extraordinary because federal and state governments were asking businesses to stay closed. The government executive orders were the reason why employees could not work.

In addition, the state unemployment system would be overwhelmed if millions were forced to apply for benefits. Also, unemployment only provides for a portion of an employee’s salary.

Based on these facts, the government created the PPP. The premise of the program is to provide small businesses with forgivable loans. American businesses can get all or most of the loan forgiven by keeping their employees on the payroll.

What are the Differences Between the SBA Paycheck Protection Program (PPP) and the EIDL Program?

There are many major differences between these two SBA programs. They are different in scope, size, and what the funds can be used on. Continue reading to see how the loans differ:

Size

The PPP is a much larger program than the EIDL as it pertains to the coronavirus pandemic. Congress allocated $60 billion to the EIDL program. On the other hand, the SBA had issued more than $500 billion for the PPP by the end of June. Due to popular demand, the program was extended to August 8th with roughly $130 billion still available.

Scope

The PPP offers an incentive to business owners to keep their employees on the payroll. The loan is potentially fully forgivable so long as the business meets the program’s rules.

Funds issued under the EIDL program are not forgivable. You may receive a $10K advance grant; however, the remainder of the loan amount must be paid back.

Max Loan Amount

Along these same lines, the PPP offers bigger loan amounts. Under the EIDL program, the max loan amount is $2,000,000. This includes the $10K advance grant.

The PPP, however, offers up to $10 million. Considering that the PPP is to maintain payroll, a business with a moderate number of employees would burn through the EIDL funds quickly. A larger amount is necessary to keep people employed.

Program Requirements for an SBA Paycheck Protection Program

Due to the urgency of the PPP, the program requirements are relaxed. For example, a credit check is not required on the application.

In addition, collateral is not required for the loan. For the EIDL program, a credit check is necessary, and collateral is potentially necessary.

Interest Rates and Terms

The PPP and EIDL have vastly different loan terms. For instance, the interest rate for EIDL is 3.75% while PPP is 1%.

While the interest rate for PPP looks more favorable than EIDL, the term is up to 5 years for new loans. The EIDL offers loan terms up to 30 years.

Approved Uses of the Loan

Each program allows you to use funds for different expenses. As we discussed earlier, the PPP is designed for payroll expenses. You can use 40% of the funds for expenses like mortgage/rent interest or utilities.

For the EIDL, you can use loan funds for fixed debts and accounts payable. Bottom line is that the EIDL allows you to more broadly use the funds. If you do not use PPP funds appropriately, you will be ineligible for loan forgiveness.

Where to Apply for an SBA Paycheck Protection Program

One of the major differences between the two programs is where you apply. For the EIDL program, you apply on the SBA website.

For the PPP, however, you need to find an SBA-approved lender. Then you will file an application with the lender directly. To make matters easier, you can submit an online application for our lending services here.

How to Apply for the SBA Paycheck Protection Program (PPP)?

The PPP application process is two-fold. You have to complete a short two-page application to get approved for the funds.

It is a relatively painless process as there is no credit check and collateral are not required. The second part of the application process involves loan forgiveness.

For this part of the application, you will be required to provide actual costs incurred. Read on for specific details on the application process:

Business Information

In the first section of the PPP application, the SBA asks for general information about your business. They want to know the physical location of your business and how to contact you. Also, ownership information for anyone with a 20% or more stake in the company is requested.

The SBA wants to know your business classification, whether it is an S-Corp, independent contractor, or other. They will also ask for your tax identification number.

Operating Data

Remember, the intent of the PPP is to keep your employees on the payroll. Therefore, the SBA wants to know specifics about your payroll expenses.

Along these lines, the application asks for your weekly average payroll. It will then ask for the number of employees you have.

The application multiplies your weekly payroll by 2.5x and adds any EIDL advance. This amount equals your PPP loan request.

Lastly, the application asks for the purpose of the loan. The SBA wants to verify that you plan to use the funds for payroll, utilities, or mortgage/rent interest.

Questions and Certifications

Next, the SBA will ask a series of yes or no questions. They want to verify that the borrower is not in trouble with the law. Also, they want to verify that the funds are going to employees who reside in the United States.

Under the certifications section, the SBA will verify that you understand what the program entails. One important takeaway is an acknowledgment of the 60:40 payroll to non-payroll ratio.

This directly affects your ability to get the loan forgiven in the future. The SBA expects you to spend at least 60% of the funds allocated to retain headcounts and salary at existing levels.

You are allowed to spend money on non-payroll items like utilities and interest. However, spending more than 40% on non-payroll will lead to a reduced forgiveness amount.

How to Apply for Loan Forgiveness?

The loan forgiveness application asks for a lot more financial data. For the covered period, the SBA asks how much the company expended on payroll, utilities, and interest.

The application relies on some inputs from an appendix called Schedule A. Here, the SBA wants to verify that the company kept its payroll at its prior levels.

The way they achieve this is by ensuring that Full-Time Equivalents (FTEs) remained steady during the covered period. In addition, they want to make sure that employees’ salaries were not reduced to decrease operating expenses. If you did reduce salary or FTEs, Schedule A will help you calculate whether an adjustment is required to the loan forgiveness amount.

The loan forgiveness application settles on the lowest of three potential amounts. The first is the modified amount discussed above.

The second potential amount is what was requested on the original application. Lastly, the final possibility is the 60% threshold for payroll.

The SBA Paycheck Protection Program (PPP) vs. the EIDL Program

These are two incredible programs designed to bail out small businesses in America. They offer lower interest rates and better terms than anything you will find in private industry.

As it pertains to the PPP, you can even get the full loan amount forgiven. There is still $130 billion in PPP funds available through August 8th, so the time to act is now.

If you want to learn more about the SBA Paycheck Protection Program, contact us today to speak with an expert regarding our small business loans.