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What is the Paycheck Protection Program?

PPP

What is the Paycheck Protection Program?

After the signing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Small Business Administration (SBA) received funding and authority to modify existing loans. Programs were put in place to assist small business nationwide that had been adversely impacted by the COVID-19 pandemic. The purpose of these programs was to provide emergency assistance and healthcare response for individuals, families, and businesses affected by the coronavirus.

One of these programs is the Paycheck Protection Program (PPP), which is granted, in full, by the SBA. The SBA is authorized to grant loans through August 8th, 2020 due to the CARES Act’s intention to provide relief to America’s small businesses expeditiously. Lenders will rely solely on certifications made by the borrower and use of loan proceeds. They must rely on specified documents provided by the borrowers to determine loan amount and eligibility for loan forgiveness.

The PPP has seven key characteristics business owners should familiarize themselves with. By knowing them, owners will know how the PPP works and whether they are eligible or not.

The first one is eligibility. The most important step is to submit the appropriate documentation to establish eligibility—such as payroll processor records, payroll tax filings, or income and expenses from a sole proprietorship.

You are eligible: if you have 500 or fewer employees whose principal place of residence is in the United States; if you are a business which operates in a certain industry and meets the applicable, SBA employee-based size standards for that industry; if you were in operation on February 15th, 2020 and had employees for whom you paid salaries and payroll taxes; if you are an individual who operates under a sole proprietorship or an independent contractor, or eligible self-employed individual; if you are not engaged in any activity that is illegal under federal, state, or local law; if you are not an individual who employs nannies or housekeepers; if you are not the owner of 20-percent or more of the equity of whose applicant is incarcerated, on probation, on parole, or has been convicted of a felony within the last five years; and if your business is not owned or controlled by anyone who has obtained a loan from the SBA or any other federal agency that is currently delinquent or has defaulted within the last seven years and caused a loss to the government.

The second one is the loan amount, which is less than $10 million, or the calculation of a payroll-based formula specified in the CARES Act. To calculate this formula, you must add payroll costs from the last 12 months for employees whose principal place of residence is the United States; subtract any compensation paid to an employee in excess of an annual salary of $100,000 or any amounts paid to an independent contractor or sole proprietor in excess of $100,000; calculate the average monthly payroll costs; multiply the average by 2.5; and add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31st, 2020 and April 3rd, 2020 minus the amount of any advance under EIDL COVID-19 loan.

The third one is the interest rate, which will be 100 basis points, or one percent. After that, we have the loan maturity. The CARES Act established the loans will have a maximum maturity of up to 10 years from the date the borrower applies for loan forgiveness. However, the SBA determined that a two-year loan term is sufficient, due to the temporary economic dislocation. Payments are deferred six months from date of disbursement. Interest will continue to accrue during that period.

The fifth key characteristic is the uses of the loan. The PPP can be used for payroll costs, costs related to the continuation of group healthcare benefits during periods of paid sick, medical, or family leave, and insurance premiums, mortgage interest payments, rent payments, utility payments, interest payments on any other debt obligations that were incurred before February 15th, 2020, and to refinance an SBA EIDL. The loan forgiveness can be up to the full principal amount of the loan and any accrued interest if the borrower uses it to cover at least 75-percent of compensation—based on 2019—but not exceeding $100,000. Also, if not, more than 25-percent of the loan forgiveness amount may be attributable to non-payroll costs, and the borrower must have claimed a deduction for 2019 for the abovementioned expenses.

Last, but not least, the seventh key characteristic is the amount of PPP loans a business can apply for. Each business owner can only apply for one PPP loan.

The PPP is a great loan opportunity granted by the SBA. If your business has suffered due to the COVID-19 pandemic, you should check your eligibility and try to apply for this loan. However, if you find you do not meet the requirements, there are other SBA loans you can apply for. Make sure to have the proper documentation and select the loan that will benefit your business the most.

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Mirel Barcelo is the founder and owner of Corp 1 Financial Services, LLC, where she offers her comprehensive services as a CPA in Florida.

Barcelo comes from extensive education and experience in accounting. She graduated from Florida International University with a Bachelor’s in accounting, as well as an Executive Master in science of taxation. Barcelo then went on to become a Certified Public Accountant in the state of Florida.

Her company, Corp 1, LLC., specializes in personal and corporate income tax services, IRS audit management and representation, tax preparation, accounting educational course programs, and sales tax compliance. Barcelo also offers accounting and bookkeeping services, compliance consulting, corporate services, and notary services.

Prior to owning and operating her own company, Barcelo acquired nearly a decade of work experience in tax services, first as a senior associate in state and local tax services at Grant Thornton, LLP., then advancing to a senior property tax consultant position at Ryan, LLC. During this time, Barcelo was responsible for national property tax compliance, valuations for property tax purposes, accrual analysis, managing clients’ budgets to ensure projects are handled efficiently, and overseeing and managing the preparation of over 5,000 tangible property tax returns.

For more information, please visit https://corp1llc.com/

pivot

How Businesses Can Pivot While Slowed Or Closed During Difficult Times

With businesses across the U.S. having closed temporarily or reduced services due to the coronavirus pandemic, company leaders are trying to find ways to stay afloat until the crisis passes – and figure out how to move forward into an uncertain future.   

Dr. Kyle Bogan,  a business consultant and speaker on workplace culture, says this unprecedented event has caused companies to learn how to pivot on the fly and consider changes that will not only allow them to survive the crisis, but thrive later on.

“Business owners are attempting to balance decreased demand with caring for and providing for their team, and protecting the future of the business they built,” Bogan says. “While there is a negative impact on revenue, many businesses will come out on the other side of this pandemic stronger as a business and stronger as a team.

Bogan suggests ways businesses can pivot during the pandemic that could help them short- and long-term:

Offer online services. “The critical element is to be creative and innovative to find new ways to deliver special services and products to your customers, and discounts where possible,” Bogan says. “They won’t forget that. Going as far as you can for them during an unprecedented time will make it likely they stay with you long after this is over.”

Expand how you inform and update customers. “Let your customers and audience know how and what the company is doing, how it’s adapting,” Bogan says. “Moreover, show you care how they’re doing. Offer links of advice on your website to help them deal with the many aspects of this crisis. If you’re authentic and honest, social media is a way to connect in a kind and helpful way, and that will add more substance to your brand’s image.”

Tighten connections with employees. Many companies are set up to work from home, and they aren’t as hobbled as others that are not. Bogan says consistent communication, enhanced by video conferencing, is vital to stay on top of business processes and to boost morale. “The entire team needs to be better informed and felt cared for and valued, and email alone isn’t sufficient,” Bogan says. “Owners and CEOs need to be transparent with teams about company situations. That builds trust. Send your team resources for anything that could help them during this difficult time. Encourage professional learning during downtime and get creative input from the team, giving them a stake in the future.”

Consider ways to make your culture stronger. Building stronger relationships can help build a better work culture, but that’s only one piece. Bogan says this is a good time for leaders to objectively look at their business culture and find ways to improve it. “The question is, do you want to be intentional about creating a team-first culture that represents you and your business, or do you want it to create itself without a clear vision?” Bogan says. “If you want to experience accelerated growth when this is over, creating a team-first culture is the path you must take. Financial success will follow. People are more willing to spend time and money with your brand if they can feel your team is happy.”

“Truly, we are all in this together – customers, business leaders, employees,” Bogan says. “That’s how a business should think and communicate now during the crisis and going forward.”

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Dr. Kyle Bogan (www.drkylebogan.com) is a general dentist and a speaker/consultant on workplace culture. He is the owner of North Orange Family Dentistry. Bogan earned a Fellowship in the Academy of General Dentistry and a Fellowship in the International College of Dentists. He is a member of the American Dental Association, the Ohio Dental Association, the International Dental Implant Association and the American Academy of General Dentistry. Bogan earned his Doctor of Dental Surgery degree from The Ohio State University, graduating Magna Cum Laude, and played sousaphone in the marching band.

How Small Business Should Think About Financing

It’s no secret that over half of small businesses close their doors within the first five years. One of the critical problems that often occur has little to do with the innovation, ingenuity, or work ethic of the small business owners themselves, but rather the lack of access to sufficient capital to cover the ebbs and flows of their operation and its associated costs. 

Scaling any idea or enterprise, to me, is less often about “entrepreneurship” —and other catchy terms we can print on a business card— and more about meeting the demands of others, like payroll and customer expectations. Simply put: small business owners need capital resources— they need cash. 

Historically, small businesses have had limited options to access capital: savings, friends and family, credit cards, traditional bank loans, or the occasional SBA loan. Enter the financial crisis of 2008-2009, which ushered in a new regulatory environment that contracted these historic capital resources, thereby creating the market-driven need and demand for non-traditional banking options.

Consequently, we find ourselves operating in a new era, one in which enterprising nonbank funders have brought novel and different capital products to the small business market. This has been largely accomplished through an ambitious mix of fintech and financial innovation. These previously unavailable financing options give small businesses more resources to consider than ever before. Now their next step is to explore them and consider how their small business might decide on the best option for their specific needs. 

As we contemplate these innovations, here’s a quick list of some of the best financing options available to small businesses:

Business Term Loans: Best for businesses looking for working capital, equipment purchases, or to purchase inventory or other fixed assets. For short-term loans, it can often be matched to a specific project and repaid to coincide with the completion of that project in 6 to 12 months. For longer-term loans, the repayment can be stretched out to 3 to 10 years, but these often require higher levels of collateral coverage or a personal guaranty by the business owner. 

Pros: Great product for larger one-time investments with targeted cash loans flow that payments can be matched. 

Cons: Larger dollar amounts and a longer payback term will require increased time, energy (think: bank meetings and interviews), and documentation. 

Equipment Financing: Best for one-off purchases like restaurant equipment and machinery. 

Pros: no upfront spend; if the business owner has impaired credit the fact an asset is involved as collateral can make it easier vs. purchasing the equipment; and tax-deductible.

Cons: Overall cost is usually more expensive in the long-run; cost inclusive of fees if the lease is terminated early can be substantial; and must take into account all terms and conditions that can be complicated (who handles and addresses a break-down in the equipment? etc).

Small Business Administration (SBA) Loan: Best for business owners who need capital for a variety of longer-term business expenses. It is government guaranteed so the process can be daunting and is processed through a bank that has an SBA loan program. 

Pros: Cost and longer-term repayment; great product for owner-occupied real estate.  

Cons: Requirements are strict; process is time-consuming (60 to 180 days); high upfront fees; and requires strong personal credit scores.


Business Line of Credit (“LoC”): Best for businesses with more volatile sales and cash flow. Flexibility to drawdown and repay based on the needs of your business.  Often secured by accounts receivable and inventory. Some LoC’s offered by FinTech operators do not require business collateral but do require a personal guaranty.  

Pros: Can access quickly (assuming facility is in place) to solve urgent issues or expenses; and great for managing working capital needs and the business’ short-term cash flow needs.  

Cons: Reporting can be much more intensive vs. other products available; upfront and ongoing fees can be expensive, especially if the LOC is rarely drawn down.


Revenue-Based Financing: This is a financing option where the repayment schedule is tied to the future revenue of the business. The genesis of the product is that the funder operates as more of a partner and is taking some level of “equity-risk”. If the revenue decreases or the business fails, the repayment is either stretched out or in the case the business fails the funder has no recourse. Small businesses can utilize this product for project financing, working capital, growth investments, or short-term needs. 

Pros: Quick access; repayment risk mirrors the revenue; no business or personal recourse except in the case of fraud.  

Cons: Products are generally 12 months or less; more expensive given level of risk with limited recourse; reporting can be intensive as changes to payment schedules requires bank and financial verification.

Invoice Factoring: The business can turn its unpaid invoices into immediate cash. The invoice factoring company collects directly from the customers and distributes capital to the business, net of its fee. 

Pros: good for managing cash flow; typically a short-term financing product (30 to 90 days).  

Cons: cost can be expensive, especially if repaid much quicker than anticipated; can be disruptive notifying customers to change their payment instructions to the factoring company; requires technology integration or higher level of reporting and the business’ customers will be dealing directly with your funder if they delay payment – not you as the business owner.  

Angel Investors/ Venture Capital: Best for small businesses who want to scale quickly. 

Pros: entrepreneurial background provides increased insights and foresight vs. dealing with alternative finance providers, banks, or the government; larger investor network to leverage for additional funds or additional business; and capital remains in the business (vs. interest costs). 

Cons: Higher rates of returns expected (typically at least 5x their investment); requires giving up equity in the business; process will be intensive; typically reserved for high visibility, disruptive companies pursuing large addressable markets on a national or global scale; and will require operating agreement additions to governance to protect their investment in the case of underperformance.

Bootstrapping: Best for businesses with principals that have savings or expendable income who want to preserve equity ownership and cash in the business. 

Pros: maintain ownership position and keeps all cash generated either in the business or available for dividends. 

Cons: Growth limited to the owner’s cash position; risk missing market opportunity because thinly capitalized; challenging if a short-term need requires more cash than available.

While the pros and cons of this list provide a guide to financing in 2019, any financing decision should ultimately come down to your assessment of the cash flows of the business (today and in the near term), demonstrated capacity to handle credit, costs versus profit opportunity (positive ROI), and repayment thresholds. 

The good news is, enabling technology allows small business owners to access various forms of capital quickly and efficiently. There is no day like today to explore options to fund entrepreneurial dreams. 

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Vincent Ney is a founder and CEO of Expansion Capital Group, a business dedicated to serving American small businesses by providing access to capital and other resources so they can grow and achieve their definition of success. Since inception, ECG has connected over 12,000 small businesses nationwide to approximately $350 million in capital