Seek Financial Advice When Applying, Using PPP Loans Finance
As the COVID-19 pandemic continues to affect industries across the United States, businesses enter phase three of the Small Business Administration’s paycheck protection program, following the Consolidated Appropriations Act 2021 , entered into force on December 27, 2020.
If a business has not been able to secure a PPP loan in the first two rounds, $ 284 billion is available for businesses to claim, even if they have already received funding.
But how do you know if you are eligible? And more importantly, how do you best spend it?
According to Steve Levy, senior vice president, commercial banking at Erie Bank in Independence, and Steve Skaggs, senior vice president of Peoples Bank in Beachwood, business owners should remember what the first word in the acronym means. PPP.
“We all call it PPP, but the first word is ‘paycheck’ and that’s what drives the program,” Skaggs said. “It’s an idea for business owners to protect their employees’ paychecks. There are exceptions for independent contractors and self-employed workers. But at the end of the day, it’s the payroll protection program. “
Levy explained that the SBA requires that a majority of funds be used for salary costs. In the first round of funding, it was expected to use 75% for payroll and included taxes and benefits, such as retirement and medical care. The second round was reduced to 60%, with the remaining 40% potentially being eligible expenses, defined as rent, lease payments, interest on loans, and utilities.
“For the vast majority of our clients who have used this, a substantially high percentage has been used on wage costs, and in many cases 100% of it has been used in wage costs in calculating forgiveness.” , said Levy.
Before determining how the funds are used, finance professionals have said that business owners should first find out if they are even eligible for a loan.
“I recommend that a lot of borrowers work with their payroll partner, an accountant or CPA, or even a lawyer to make sure they’re eligible,” Skaggs said. “The role of the bank is not to confirm eligibility. Our role is to make sure that the information you provide is something that we can submit to the ASB. “
Levy said the program dictates how you use the funds, but it’s more important to track how you use them to qualify for a loan forgiveness.
“A number of my clients put funds in a segregated account and use that account only for their related expenses, which is not always necessary as long as you are a good accountant,” he noted. “The SBA wants to make sure you are using it for the right things when you request a loan forgiveness.”
While banks can only give so much advice, Skaggs has doubled the number of people who meet regularly with their advisers to make sure they are using the loan correctly.
“I remind them to work with their finance professionals because they will be more familiar with what is acceptable and what is not,” he explained. “At the end of the day, every customer who gets the PPP loan wants to be forgiven. They don’t want to have a loan at the end of the day. “
Levy suggested that applicants go through their regular bank to apply for the loan, as they know how their business works. And if a loan isn’t canceled, the bank would be ready to work out repayment strategies with a customer they know.
“So your best bet is your existing bank,” he says.
Skaggs said, “You are forcing your business that if you don’t qualify for the pardon, you have to pay it back. And if the payments are not made to our bank or another bank, they will go into collections. “
But the most important thing is to interact with your finance professionals during the application process, even if you have already applied.
“Banks can walk you through the information you’re going to need to present, and you should check with your advisors to make sure you’re getting the maximum amount you’re eligible for,” Levy said. “It’s the value your banker brings to the table by guiding you through the process.”
Skaggs said: “Your team should be your accountant, your lawyer and your banker. When you have these three, you have a fairly stable stool and you know you will be able to sit on it. If one of them is not there, it is not stable. So, I say always use your partners. “