PPP Loans: Dos and Don’ts for Small Business Owners
The devil is in the details for small business owners seeking funds from the Paycheque Protection Program.
A missing signature can derail your PPP loan application for days, even weeks, delaying the financial help that was desperately needed. And disorganized record keeping can lead to headaches when you ask for a forgiveness and need to show how every dollar of your P3 loan has been spent.
Applying the following best practices can help small business owners get their loan financed and canceled with relative ease.
Do: Gather your documents in advance
A little legwork can go a long way in applying for a PPP loan. Learn about the program to understand who is eligible and how to apply. Then gather all the necessary documents.
At a minimum, you will need payroll documents and tax returns. Bank statements, receipts, purchase orders and canceled checks may also be required. Keep everything together so that you can easily access them at the request of your lender.
“Most people learn the hard way that an ounce of preparation is worth hours behind the scenes,” says Edward Barry, CEO of Capital Bank NA in Maryland. “Understand what you need and organize it well. “
Don’ts: ignore signatures
A missing signature can delay your request for days or even weeks. So double check that every declaration and document is signed before submitting your documents.
“We see it all the time,” Barry says. “People forget to sign something and it takes them back to the beginning. They basically lose their place in the line.
Do: Keep separate bank accounts and consider getting a second business bank account for a PPP loan
Mixing business and personal expenses is generally not a good practice. And that can really muddy the waters when you apply for a PPP loan, says Ken Alozie, managing director of Greenwood Financial Advisors in Washington, DC.
A bank statement from an establishment small business current account can easily show that your business was in operation on February 15, 2020, which you need to show to be eligible for a PPP loan. If your business goes through your personal account, it’s harder to prove, says Alozie.
Beyond that, Barry recommends opening a second corporate checking account specifically for your PPP funds. This way you can easily show how the money has been used when it is time to ask for forgiveness.
Don’ts: spend your PPP money on ineligible expenses
Your PPP loan essentially becomes a grant, provided you use the product as directed by the Small Business Administration. This means using the bulk of your funds (at least 60%) on salary costs, such as wages, hourly wages, paid sick leave, and group insurance benefits.
The remaining 40% of your loan can now be used for a wider range of expenses, including operating expenses, health and safety modifications, and some vendor costs.
Non-compliance with SBAs loan forgiveness requirements means you may have to pay off part of your loan.
Do: apply to multiple lenders
You don’t want to spam lenders with loan applications, but you want to have a Plan B and Plan C in case a lender rejects your request.
Alozie recommends working with a lender you know. If that’s not an option, look for lenders that accept PPP requests from new customers (many banks have prioritized existing customers in previous cycles).
Accepting multiple PPP loans will quickly get you in the hot water, so withdraw any requests from other lenders as soon as you are approved for a PPP loan.
Don’ts: go it alone
Completing your PPP loan application can be a daunting task, especially for businesses with a few dozen employees. Rely on your accountant or accountant, if you have one, to get the necessary reports on demand.
Be sure to read: Are you the trustee of your 401 (k) plan?
You can also contact your local small business development center or SCORE, a non-profit organization that mentors business owners.
“You absolutely want to find a partner who is knowledgeable and able to help you navigate the process,” says Alozie, who is a certified mentor with SCORE.
Do: build a relationship with your lender
You want more than a transactional relationship with your bank. You want a contact who knows you and your business. Then when you need help (like when applying for a P3 loan), you are not just a faceless application.
“Part of what you want to do as a small business owner is build relationships with the people you need before you need them,” says Alozie.
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Kelsey Sheehy writes for NerdWallet. Email: [email protected]