For many small businesses that are struggling to stay afloat due to COVID-19, the idea of taking out another loan might seem like an unnecessary risk. However, nothing could be further from the truth. Thanks to the generous terms of the new Paycheck Protection Program (PPP), small businesses owners now have the opportunity to apply for financial assistance without having to worry about incurring significant debt. In this episode, Jon Aidukonis and Gene Marks discuss the benefits of applying for a PPP loan and how it can help your small business thrive during this current health crisis.
1:05—Today’s Topic: Should My Small Business Apply for a Paycheck Protection Program Loan?
3:07—Now is the ideal time for qualifying small businesses to apply for a Paycheck Protection Program loan. This loan, which you can apply for until June 30, is intended to keep your workforce employed for the duration of this pandemic.
3:42—Due to the generous terms and conditions of the PPP loan, you don’t need to worry so much about forgiveness once you’re approved. Instead, use this time to focus on actually running your business.
6:01—If for some reason you don’t qualify for forgiveness on your loan, the interest rate will only be 1% over a 5-year period. After which, you will still have access to a wide range of competitive refinance options.
8:01—Because applying for forgiveness is a relatively simple process, banks are encouraging owners to take care of this matter upfront.
12:29—Business owners should also use this time to evaluate their current business practices and determine which areas need restructuring. These changes could prove beneficial for both a potential second wave and for life after COVID-19.
- The Paycheck Protection Program
- Full Forgiveness Applications for the Paycheck Protection Program
- Small Biz Ahead
Jon: Good morning, and welcome back to The Small Biz Ahead Podcast. This is Jon Aidukonis, and I’m here with Gene Marks from the Marks Group. It’s been a couple months since we last connected, so how are you doing, Gene?
Gene: I am doing okay, Jon. Just sheltering in and getting ready to go back out into the world and enjoy. How about yourself?
Jon: Do them all things. Yeah. A new month. We’re getting close to summer. For those of you listening, we’re recording this in mid-June. Just had a birthday. We’re getting ready for a season where hopefully, at least looking out the window, it’s going to feel like a nice vacation.
Gene: I agree. And I don’t know about you, but you can ask me anything you want about anything on Netflix and I can probably answer that question.
Jon: I can probably balance you out on the Hulu side. I’ve gotten very used to Hulu Originals over the past couple of months. What’s interesting is I think last time we talked was right before the world changed to what we’re going through right now. It was right before COVID. We were prepping on a whole bunch of marketing advice for the year, some fun planning, tips and tricks, getting some testimonials and stories from some of our fellow small business owners and experts. And come release day, we interacted with something called a stay at home order, right? Where states across the country were like, hey, there’s this global pandemic thing happening. It might be safe to shut your doors for a while.
We knew that we were going to have to take a little pause from our everyday routines, and that’s turned into a pretty significant burden on the backs of small business owners over the past couple months. So I know that in the interim for our regular blog readers, you’ve seen a lot of content go out about resources that have popped up and really communities and companies rallying to support you in the way they best can with a lot of emphasis on programs that were launched on behalf of the federal government. And Gene, I know that you as a business owner and also as just someone whose kind of a finance expert has been a great support for us in trying to communicate what folks need to know on things like the Payroll Protection Plan.
And what I thought we could use today for was kind of talk through a little bit of where that stands now, because I think like everything else, it’s been a really dynamic program. There’s been a lot of information going out that’s quickly changed, and I think we’re probably at the point where some folks are trying to rationalize, what did I really borrow? What do I have to pay back? And how do I figure that out? Because there were so many layers of things to consider there. It’s hard to keep up on it all. But I know right before we started talking, you had mentioned there’s even newer guidance from what was available a couple of days ago. And it just feels like a really good time to level set and kind of figure out where we stand.
Maybe pleasantly surprise some people on what’s covered and forgivable or let those who might have to bear the burden of some payback kind of start to plan on what that’s going to look like for them and how they can kind of keep that covered.
Gene: I actually have two big messages for anyone running a small business that’s listening to us right now. First of all, if you haven’t applied for a Paycheck Protection Program loan, it is the middle of June, and I strongly urge you to apply for one if you think that you are eligible, because there’s still a hundred billion dollars less left in the kitty. The program right now ends June 30th. It maybe extended. It may not be. And it is absolutely a very, very beneficial program for those that have applied. People have really been able to save their businesses because of the money that has been offered. So number one is if you haven’t applied, apply.
Number two is if you have applied and you’ve gotten your money, which has probably been somewhat recently in the past few weeks, my message to you is don’t worry about forgiveness. And the reason why I say that, Jon, is because the new rules are such that you now have… To get forgiveness, you now have six months of eligible expenses that you can put in for forgiveness. You have a lower ratio of non-payroll and payroll, which means that you can now have 40% of your costs be non-payroll expenses that could be eligible for forgiveness. Those are rent and utilities and mortgage interests. In addition to that, Jon, some of the requirements to get full forgiveness is that you had to restore your head count and your pay levels. You don’t even have to do that until December 31st, the end of this year.
And even if you don’t restore it by then, you will still get some forgiveness. It’s not like you lose it all. Finally, you don’t have to apply for forgiveness until… You have 10 months from the time that the forgiveness period ends. So if you just get your loan today, it’s basically 16 months you have to apply for forgiveness. You’ve got your six months of forgiveness period, that’s 24 weeks, and then you’ve got the period that you can apply. So I guess the reason why I say that, Jon, is a lot of people are getting crazy about it right now. Now is the time you should be focused on running your business and recovering and growing and navigating and surviving. So as the economy grows, do what you’ve been doing and you can worry about forgiveness later.
Gene: Those are my two big pieces of advice right now, Jon. But at some point, you will have to worry about forgiveness. A lot of us are going to have to do that. You know?
Jon: Oh, for sure. It’s an interesting program because so much of it started at a federal level, but it’s really issued at a local bank level for most folks, if not all, right? So when we think about things like that, if they went through an SBA lender, are there hard and fast terms that are pretty ubiquitous for all borrowers on what they can expect to have to pay back their first payment? Or is that something that a small business owner should reach out to their lender to confirm? Because to your point, like the forgiveness might change, but if that’s something they need to credit versus kind of plan for.
Gene: So it’s a great question because first of all, yes, there are a hard and fast terms and be aware that all of… Like you said, the loans themselves are given out through a network of lenders. So it could be a bank, a big bank. It can be a community bank. It can be one of the online lending services, the Kabbage and OnDeck Capital and QuickBooks Capital. There’s a bunch of them that are out there, Square, PayPal. All those they offer these loans you can apply. The terms though, they are pretty much the same. If you don’t get forgiveness on your loan, then you’ve got five years now to pay it off. And Jon, the interest rate is 1%. So it’s kind of like people sometimes panic saying, “Oh my god, I got a $20,000 loan for Paycheck Protection, and I only got 5,000 of forgiveness. I’m stuck with 15,000.”
Okay, well, it’s 1% interest. You pay it back over a five year period. And by the way, at the end of that five year period, you should hopefully be talking with your banker because most of the bankers I’m talking with are very happy to refinance those loans. It might not be at 1%, but I’m sure it would be something that you can maintain. So you don’t have to freak out about it. It could be a very low interest loan that can go on well, beyond five years. Like I said earlier, relax. You’re going to get forgiveness. It seems you’re going to have the expenses to get mostly forgiveness. And if you don’t get all of it, whatever’s left outstanding is going to be pretty much free money for the next five years.
Jon: Yeah, and that’s exciting news because I think part of the conversation around this loan or a lot of the packages that they put together across the US has been, are we generating more debt? That’s really just delaying a collapse. But from what you’re saying, it sounds like there’s a lot of options where you can really manage that responsibly and not be overburdened.
Gene: There are. And because of that, you can focus more on managing your business than worrying about it. Now, that doesn’t mean there’s stuff you can’t be doing now to prepare for when you apply for forgiveness. Remember, when it comes time to apply for forgiveness, when your loan is over, you’re not going to the government, you’re not going to the SBA, the Small Business Administration, you’re going back to your bank because you have a promissory note with your bank. And basically the SBA has delegated the authority to the bank to give the forgiveness because they’re busy doing other stuff. So you’re going to go back to your bank and your bank is going to be asking you to do a few things. First of all, they’re going to ask you to fill out a forgiveness application.
The forgiveness application you can look at right now. There is a copy of it right on the Treasury Department’s website at treasury.gov and also on the Small Business Administration website at sba.gov as well. There’s two applications. There’s a full application if you’re an employer obviously with employees, but there is brand new, a new easy application, a short form application that you can fill out. It’s only a page and a half long. And if you’re like a self-employed person or you have no employees, or if you didn’t reduce the salaries of your employees by more than 25%, or if you really got crushed by COVID and your sales went down by more than 25%, you may be eligible to just use the easy form and that easy form just asks for a lot less information.
So your bank is going to tell you, “Listen, fill out the forgiveness application, the federal forgiveness application first. You got to do that, either the regular form of the easy form.” And then the bank is going to ask you to supply some documentation, and the documentation, it’s not that tough. It’s your payroll records. So if you’re using an outside payroll service, then those services can generate a report for you telling you what your payroll was during the forgiveness period. And then you’re going to have to make sure that you submit maybe invoices to justify the rent that you paid or the utilities that you’re claiming or your internet service. These are all things you should be doing anyway and holding onto anyway.
Gene: So you want to make sure that you’re keeping up those good filing practices along the way, and you’re keeping your records there. Talk to your payroll company or your bookkeeper, whoever does your payroll, and make sure that when the time comes, we can generate those reports for the application. Look at the application now so you know what to expect. And like I said at the beginning of this conversation, get back to doing business and marketing and selling and bringing back your employees because that’s more important right now.
Jon: For sure. And it sounds like a lot of the documentation that you’re listing off is stuff that’s pretty easily available. So you shouldn’t necessarily need an accountant or a business manager to supply that for you. It’s really just receipts.
Gene: Yeah. It’s so funny. There was some survey that I read recently online where it was like 10% of small business owners weren’t going to apply for these loans because they were concerned. They didn’t have access to their payroll data or their accounting records or whatever. And I like shake my head when I hear that, Jon. You got to be kidding me, man. 2020. I mean, to not have access… I realized you can’t be a business, you’re still doing everything manually and you’ve got paper records, then, I don’t know, late at night, running into your business and get the records.
Where number two is, I mean, if that’s still your situation, you really have to take a look at your accounting system and consider moving to an accounting system in the cloud, for example, where you can get access to that stuff anywhere you want, anytime you want.
Jon: If you do have a service provider, like an electric company or a payroll company or an internet service provider, if you’re not enrolled in self-service options, that might be something to consider so you can quickly and easily print out invoices and past statements. So as you’re looking to kind of aggregate this information, you can kind of do it on your own time so you’re not adding another burden to your day. But what I think is also interesting, Gene, to your point about kind of like thinking about planning for the future and kind of taking that moment to pause and take the breath because there are some options and some time here.
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Jon: It might be a really good moment too to start thinking about what have you changed operationally from COVID and what might kind of be a longer tail solution. So I think about things like curbside pickup or contactless payment or other expenses that might be covered in some part by funds you might have gotten. This could be a really good time to kind of spark and push some of that innovation forward. Knock on wood, if we have to see a second wave or another kind of round of pausing or any kind of restrictions, you might be able to kind of be ahead of the game with the learnings that you had this first time.
Gene: So you bring up such a great point because, and you mentioned the second wave, and again, we’re here in the middle of June talking. I don’t know, maybe there will be a second wave. I mean, nobody knows. But I do know that every competent business owner I speak to, none of us like surprises and they are making plans just in case there is a second wave. I don’t think that you can rely on the government writing us a check again if that happens or having a program like the Paycheck Protection Program. We got to be prepared.
And Jon, to your point of curbside pickup or maybe selling more stuff online or opening up new channels, or reevaluating your customers and saying which ones should I be focusing more on, or looking at your product lines and saying which ones are really making me money and which ones are just not worth the time, this is the opportunity to do that because we’ve now learned that the businesses that have cash in the bank, they’re the ones that survive these things. And if a dreaded second wave does come and there’s another hit to the economy, what are we going to do? Where are we going to get our sales from, and how are we going to be generating cash? We’ve got some time to think about that right now, and I think every business owner should be thinking about it. I know I am in my business.
Jon: Yeah. I think you’re exactly right. And I think what’s interesting is I do think that there’s now a sense of community among general consumers where small businesses are kind of back in the forefront of their minds because I think they just witnessed what kind of all of you went through and are really looking for ways to kind of make a more conscious effort to support and help in the future. And I think that’s really exciting. So I think kind of getting over or under, rather, some of those trends and kind of opportunities to diversify how and where you’re accessing a customer base could actually be a really good thing to start thinking about while you might have the means to do so as you’re thinking about what a 2.0 business model might look like for you.
Gene: Correct. Correct. I spoke just before you and I had this conversation with a woman who runs a toffee company, Anita Comiskey. She sells to like hundreds and hundreds of specialty stores around the country, toffee. And you would think she’d be really diversified, but all the specialty stores, Jon, got shut down because of COVID. And that whole channel just dried up for her. So she had to rethink and saying, “Geez, I’m really exposed here. If this happens again, I need to make sure I’m generating sales from other sources.” And that’s just one example of how you need to be expanding your different channels and where you could be selling to.
I sell CRM applications, and I think there are a lot of other add-on products I could be selling that would be really helpful in an economic downturn. I’ve been thinking seriously about doing that because I want to be able to offer those if there is a second wave.
Jon: Gene, I think you brought up some really good points, especially when it comes to the PPP program. And it seems like a bright spot that folks have some time to really kind of think about it. There’s some more flexibility, and I think some good resources available on where they can get more clarity on what might be covered based on the terms of the agreements they opted into.
Jon: I think that’s it for today, but thank you as always for your expertise and guidance. And hopefully everyone out there is holding up to the best that they can looking forward to kind of this pivot to getting back to work. We’re here to help where we can, so make sure you subscribe to the podcast. It’s sba.thehartford.com. Lots of content coming up soon on tips, tricks, resources as you reopen, and we’re really excited to kind of stand behind you as you’re navigating this. And feel free to reach out. Send an email, leave a comment with some questions. We’ll be monitoring those. And if there’s things that we can kind of help answer or give clarity on in the future, give us a shout. We’re here to kind of get you what you need.
Gene: Let’s get back to recovery.
Jon: All right, everybody. Have a great afternoon and thanks for listening.
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