Perhaps the process has proven a bit tedious. The vagueness and seemingly conflicting directions…But at last, you've successfully applied for the PPP loan and what's more, unlike many small US businesses, you've already received the funds. That's wonderful news! Now the question remains: what exactly do you do with the funds? And also, how quickly do you need to spend the money? In considering such questions, you might think about the following:
- How can I best use the cash to maximize the amount I received?
- If you are going for loan forgiveness, what do you need to do/spend it on more specifically so that you stay eligible for this forgiveness?
We thought we'd put together a quick overview of some of how you can use your PPP funds to get the most from the loan and if you do intend to apply for forgiveness, ensure that you stay eligible to have that loan turned into a grant.
Have a handle on those forgivable expenses...and use the money accordingly
If you choose to go for forgiveness (which most small companies are/) then you need to have a firm understanding of which expenses are the right expenses. In other words, keep very close tabs on what percentage of the loan goes toward what costs. You may want to establish a separate account for your PPP funds, so that you have a more focused paper trail, as your likely going to have to show where the money was spent.
- Ensure that you are spending at least 75% on payroll expenses within 8 weeks after receiving the loan. This can also include those expenses associated with employee insurance, etc.
- Use the money toward your rent or mortgage costs (again, within the eight-week window/).
- Pay your utility bills within that window as well. Rent and utilities can only account for 25% of the forgivable amount.
Keep accurate documentation
This bears repeating: you want a very detailed record regarding every dime of that PPP money you spend. The number of employees you're paying is going to be critical. If any were furloughed after you got your loan, you do have until June 30th to hire them back to get full forgiveness. Every single expense you have that you put your PPP money toward should be noted and documented so that when asked by the lender or SBA you can show them an in-depth record of what you did with the money. The more information you can provide, the better chance of receiving forgiveness.
Generate forecasts extending through the rest of 2020
The impact of this pandemic is going to be felt by numerous small businesses probably for many months to come, if not years. Understanding what direction your company can potentially take in light of this crisis is important. Sit down and spend some time projecting potential profit and loss. Also, include a cash flow statement as you make your projections. You'd be surprised at how much devising such forecasts can help steer how you use your PPP money. For instance, you'll have a much better handle on how exactly the PPP loan can enhance cash flow. You will know where best to put the money, when to spend it and how overall, this will impact the business moving forward. And perhaps most importantly, you'll gain more insight into whether the PPP loan will be enough to enable the company to make it through this.
Look beyond eight weeks and think about "what if"
Once that eight-week window closes and the cash has been utilized according to forgiveness guidelines, then what happens? Do you foresee sales picking back up at the end of this period? Is there some way to adjust your business model so that the products/services you're offering are more relevant to a post-pandemic atmosphere? These are all questions you need to be asking as the eight weeks come to an end.
Work the numbers in a variety of different ways. Devise numerous what-if scenarios so that you can start to plan for a host of different options that may occur. The key obviously, is going to be to determine what it's going to take to keep your business afloat. The more plans and adjustments you come up with, the better chance you'll ultimately have.
Think about additional funding
The reality is the PPP loan may not be enough for a small business to come through this thing okay. It is not unreasonable to conjecture that many companies are going to have to look for additional funding beyond just the government-backed relief effort. Look at your overall cash position—are you good for the next three months, how about six? Can you sustain the company with just the PPP loan? If not, then this may be the time to start looking into other financing options.
Additionally, you might approach suppliers and vendors and try and renegotiate terms with them and/or extend payment timelines. There are also local efforts at the state and county levels to help out small businesses with low-interest loans during this crisis. Explore all of your options; you must leave no financing stone unturned when it means the survival of your company.
Stay on top of PPP loan management
By documenting where the funds go, forecasting what your company's economic picture looks like moving forward, and carefully managing all aspects of the loan process, you have a chance of putting together a more solid game plan moving forward.
First Union Lending as always is here to help smaller businesses across the country make it through this and optimally go on toward even greater success. If you are still in need of PPP funds, we can assist you in the process and ensure all goes as smoothly as possible. We also offer a variety of business loan programs, from short term loans to merchant cash advances, to lines of credit. If you do find that you're going to need more assistance, we would love to discuss your options. Call today!