Here’s the very latest information on PPP, EIDL, and other loan options (forgivable and otherwise) from my interview with storied consumer credit expert Gerri Detweiler, who has more than three decades of experience in consumer credit education. Currently, Detweiler is the education director at Nav, a fintech marketplace that connects small businesses with lenders and business credit cards.
Please note that I myself am not a financial professional and am neither licensed nor equipped in this area; the information and opinions below are those of Ms. Detweiler.
Before we get to the interview, here’s something of particular interest to my readers: Among its various services, Nav provides an online digital tool to instantly connect connect your business with PPP funding options. It’s called PPP QuickConnect, and it offers to “match you to an SBA lender or agent looking to help businesses like yours” apply for the funds available to small business owners under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Micah Solomon, Senior Contributor, Forbes: What’s the current status of the PPP (Payroll Protection Program), and the potentially forgivable loans that it offers?
Gerri Detweiler, Education Director, Nav: The first round of funds went very quickly, completely exhausting $350 billion in two weeks. This second round of funding, which was made available on April 27, is being distributed at a slower pace. As of May 12, the SBA has approved 2,647,406 loans and released $191,397,908,854 in funding, which means we are approaching two-thirds of funds being disbursed.
Interestingly, there have been fewer applications for large amounts and more for smaller amounts. In fact, the average PPP loan size that Nav has helped business owners secure is roughly $20,000. Overall, this is a good thing as it means smaller businesses have had a shot at getting funding this time around.
We have heard rumors that another round of PPP funds may become available. Additionally, recent legislation has been proposed to help provide increased flexibility for business owners using the PPP funds. The legislation, which is called the “Paycheck Protection Program Flexibility Act” would:
· Allow forgiveness for expenses beyond the 8-week covered period.
· Eliminate restrictions limiting non-payroll expenses to 25% of loan proceeds.
· Eliminate restrictions that limit loan terms to 2 years.
· Ensure full access to payroll tax deferment for businesses that take PPP loans.
· Extend the rehiring deadline to offset the effect of enhanced Unemployment Insurance.
Based on the questions and comments we’ve received from small business owners, we believe these changes would be welcomed. Business owners in the Facebook group we created, the SBA CARES Act Insights Hub, have been clamoring for more flexibility. ]
Solomon: What options does a business owner have instead of or in addition to PPP?
Detweiler: In addition to PPP, a business owner may find an Economic Injury Disaster Loan (EIDL) to be a good option. These low-cost working capital loans may be used to cover expenses the business would have been able to pay had the disaster not occurred. For businesses that rely on 1099 contractors, rather than employees, for example, these funds may help pay those contractors.
However, the SBA has closed the portal for those loans except for qualifying agricultural businesses. (We’ve also seen that the SBA is encouraging those who applied early for EIDL and have an application number that starts in the 2000s to reapply.)
If you can’t get PPP, or if it’s not a good fit for your business, you may want to consider:
• The Employee Payroll Retention Tax Credit which provides employers whose operations were fully or partially suspended due to government orders, or who experienced a major decline in receipts, a credit against Social Security wages for up to 50% of $10,000 in qualified wages (including health plan expenses) paid after March 12, 2020, and before January 1, 2021. Talk with your accountant to see if you qualify. (NOTE: You can’t make use of both this tax credit and PPP.)
• Pandemic Unemployment for yourself and/or your employees. We’ve heard from some employers and their employees that they stand to make more from Pandemic Unemployment than they would if the employer gets PPP and pays them their current wage. In some cases, unemployment is a better fit. The big wild card here is how well your state is administering unemployment for the self-employed or those who have lost their jobs due to COVID-19. Some states are doing a decent job and others are abysmal.
Solomon: Aside from these government programs, what are the elements to consider and watch out for when looking for and applying for credit?
Detweiler: Understanding the costs of financing can be confusing. Unlike consumer lending, in business financing, lenders aren’t required to disclose an APR (annual percentage rate) . That means it can be very difficult for business owners to understand what small business loans really cost. It also means small business borrowers can easily wind up with financing they can’t really afford. If costs are disclosed as “fees” or using other terminology like “factor rates,” you’ll need to make sure you really understand what you’re getting into. The costs of these loans may easily be higher than just using your credit card at 18%!
Finding financing is also tricky, especially for small businesses that don’t meet the qualifications top tier lenders look for:
· High personal credit scores and clean business credit reports
· Significant cash flow and solid financials
· At least two years in business, and preferably more
Traditional lenders like banks haven’t always done a good job of serving smaller small businesses well, and PPP was no different. Small loans, while vital for the business, aren’t especially profitable, especially for lenders like banks which have significant compliance costs. Online lenders have stepped in to fill this gap offering fast financing but it will often be more expensive. The borrower really needs to understand whether financing will provide ROI or whether it will put them into a cycle of debt that’s hard to escape.
The bottom line is you need to understand all your options and put in the work to become lender-ready before you need financing.
Solomon: Any other “credit hygiene” practices you’d like to share?
Detweiler: Pre-COVID, many business owners hadn’t been checking or monitoring their business credit. Monitoring both business and personal credit is even more important now for a couple of reasons:
• When lending does start picking up again, business owners with stronger personal and/or business credit are going to be among those who have the first shot at the best loan programs. Lenders will be cautious and more risk-averse. Strong credit scores will help your business qualify. (Revenues are also going to be very important.)
• Scams and identity theft are only getting worse. Both the National Cybersecurity Society (NCSS) and the IRS have identified business identity theft as a growing problem. One reason business identity theft can be easier for crooks to pull off than consumer ID theft is that business owners aren’t checking their business credit so it can go undetected longer.
Consumers can get their credit reports for free from all three bureaus at AnnualCreditReport.com, which recently upgraded to free weekly credit checks. They can monitor their personal credit scores at over 138 sites, including the company I work for, Nav. Note that while consumers can get free credit reports annually, there’s no legal requirement that commercial credit reporting agencies provide free business credit reports. To eliminate the hassle of contacting individual bureaus–and having to pay out of pocket for several reports–Nav also makes it possible to obtain reports from all three major business credit bureaus for free, and leverage the companies’ services to monitor their business and personal credit in one, easy-to-use platform.
Solomon: What other “downturn management” tips do you have?
• Don’t “ghost” your lenders and vendors if you’re having trouble making payments. Instead, reach out to them, sooner rather than later. Let them know what you’re doing to try to get back on track and try to negotiate longer repayment terms. They want you to stay in business, too.
• Get help from your local SBA resource partners. These include Small Business Development Centers (SBDCs), SCORE, Women’s Business Centers and Veteran’s Business Outreach Centers. (Visit SBA.gov/tools to find local resources.) They provide educational resources and free mentoring. At a minimum, they can be an invaluable source of information for local, state and federal programs and resources.
• Get support to stay mentally healthy. If you aren’t sleeping or your stress level is impacting your ability to think clearly, reach out to your doctor or other resources for help. More than anything else, your business and your family needs you to stay healthy.