Small business owners who want to take advantage of the PPP loan program must ensure they have all the information they need for a successful application. The SBA has a list of requirements and a helpful tool to help you get started.
Rob Scott, a regional administrator for the SBA in the Great Lakes, claims that the most typical error made by small business owners throughout the PPP loan application process is a need for more preparation.
Be Prepared:
If you have applied for or are preparing to apply for a PPP loan, you must be prepared. Borrowers may experience several audits, investigations, and legal proceedings throughout their PPP loan application process, so being ready and aware of your rights is crucial.
The SBA has issued many updates and guidance, and we recommend reviewing them closely. We also encourage borrowers to check our PPP Loan Forgiveness Resource Center, as we will continue to update it in the future.
One of the most significant changes to this program is the issuance of Second Draw loans, which allow borrowers to apply for a second round of funding. These loans require a separate application for businesses that have exhausted their original PPP funds.
Be Honest:
When applying for a PPP loan, it’s crucial to be truthful about your company and its needs. The best course of action would be not to misrepresent your staff or the services you offer.
In addition, make sure to keep accurate records of your expenses and payroll during the period you took out the loan. It will help you if you ever need to prove your eligibility for PPP loan forgiveness.
Moreover, be sure to certify that your business meets all the program requirements and follows all guidance from the Small Business Administration (SBA) when you take out the loan. If you don’t, you risk being charged with fraud crimes.
To ascertain if companies that got PPP loans acted honestly, the Treasury Department and the Small Business Administration are speeding up audits. If the OIG finds evidence of fraud, they can deny your business’s application for PPP loan forgiveness.
Be Flexible:
When applying for a PPP loan, it’s essential to be flexible. There’s a lot of information to digest, and it’s easy to get confused.
Fortunately, there are approaches to streamline the procedure and increase accessibility for small business proprietors. Working with your lender to ascertain your eligibility for a PPP loan should be your first step.
Then, it’s essential to calculate the loan amount you can afford to pay back. It is especially true for borrowers who are self-employed or run a sole proprietorship.
For most borrowers, this is calculated using a formula that considers their pre-pandemic gross income. It can be up to $20,833 (for sole proprietors) or $29,167 (for independent contractors). It’s also possible for businesses that are in the food services or accommodation industry to use a higher calculation of 3.5 times their average monthly payroll costs. The maximum loan size for these borrowers is $2 million.
Don’t Wait Too Long:
While there is no guarantee you will be approved for a PPP loan, waiting too long to apply can prevent you from being one of the first businesses to receive funding when it becomes available. The SBA is awaiting additional funding to expand the program and make it more accessible to borrowers.
In the meantime, if you already have an approval number, continue working with your lender. They may be holding your application until the additional funds are available to make sure they are processing it correctly.
Another factor to consider when applying for a PPP loan is the monthly average payroll calculation. Each employee is capped at $100,000 per year or $8,333 per month, which impacts how much you can borrow.
Remember, the amount you can borrow will significantly reduce if you have high-earning employees. You could temporarily reduce their salaries or cover the shortfall out of your pocket.
