The PPP Loan: Is It Right For Your Business?

After weeks of upheaval and gridlock, you’re antsy to get the wheels back in motion and start your business’ recovery phase. One of the top things on many entrepreneurs’ minds is whether to apply for a PPP loan to help make that happen. Even though the PPP can provide much needed funding, it’s critical to first consider if it’s a match for your particular needs. ​​​​We reached out to startup and business attorney, Justin Agans with Charlotte-based Spengler & Agans, PLLC to weigh in on the PPP and the most important factors to consider when applying. We discussed the program at length and what to take into account when choosing whether it’s right for you. ​​​​Here’s our takeaway.​​​​

Is the PPP right for my business? 

One of the first things to consider is if applying for the PPP is a smart move for your company at all. While everyone is likely feeling the strain in at least a few areas, the PPP was designed for companies that find themselves in a major financial bind due to the pandemic–where shutting the doors is likely without significant financial assistance. ​​​​

Here are some points to help you decide:​​

  1. ​​Does your company have any other viable liquid assets, such as lines of credit, access to other loan options, or shareholders to tap into for assistance? Are you interested in the loan for growth/expansion purposes, not necessarily just for survival? If so you answered yes to either of these, the PPP is probably not for you.
  2. ​​On the other hand, are you already seeing a 30-50% decrease in business or foresee that receivables are going to be way down due to factors out of your control? Are you looking for assistance to make payroll and ensure your doors stay open? If so, it’s a no brainer to apply. 

​​​​All in all, the PPP is designed for companies that have or are going to take a big hit. So if that’s you, apply! But if you have not really seen a big impact and are using speculative logic for assessing the need, it’s risky. Loan terms and conditions are still evolving and you may be more likely to get audited if you’re taking the money just to bolster growth. ​​​​

To help you better assess your situation:​​

  • ​​Create a cash flow forecast for the rest of 2020. Include estimates on how you expect the pandemic to impact your cash inflows (revenue, investments, asset sales, etc.) and outflows (operating expenses, major purchases, distributions) for the remainder of the year. Doing so will help you determine if you’re applying for the PPP in good faith.
  • Assess the impact on your business beyond 2020. Revisit all assumptions, revenue, projections, accounts receivables, and collections, etc. Document any new costs relating to the pandemic, such as home office setups, expenses in transitioning your team to work remotely, necessary shifts in your business models, etc. 
  • Assume you will have to repay the PPP. While the program allows for most or all of the funding to be forgiven if certain conditions are met, the safer bet is to plan to repay it like any other loan. If you don’t have to, all the better, but you’ll be prepared for the worst case scenario.

​​​​Once you get the PPP loan, consider how you’ll spend the funds.

 The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). You can use more than 25% on rent and utilities but that reduces the amount that will be forgiven. This is something to keep in mind when weighing your particular needs to stay in business.​​

To ensure loan forgiveness, make sure to follow all guidelines and have them reflect in your records. Keep your business records in order by:​​

  • ​​Organizing all your documents: payroll, commercial leases, reconciliations, etc. 
  • ​​Outlining how you plan to use the PPP funds over the coming months.
  • ​​Detailing where funds are being allocated, in spreadsheets, memorandums, etc. 

Always consult your support team, specifically ​your professional advisors (Attorney, CPA, HR, etc.), to get personalized counseling and advice.

The goal for anyone getting taking advantage of the PPP loan is to make sure they’re accepting the funds in good faith. The PPP is designed to help companies with the truest need and can make the difference in keeping doors open or folding. By examining your motivations in considering the loan, you’ll determine whether you’re a good candidate or not and give yourself the best shot at avoiding being stuck with debt to be repaid.  ​​​​For more detailed information on the PPP loan and how to apply, go to:

https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program

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