Finance · October 15, 2020

Ready Your Business for Life After a Paycheck Protection Program Loan

The federal government's Paycheck Protection Program, or PPP, supported business owners during the COVID-19 shutdown. While these loans have provided a valuable lifeline for many who qualified, they do have some considerable limitations. After you've received funds from your PPP loan, it's important to examine other financing strategies to ensure your business is set up for success through uncertain times.

Paycheck Protection Program guidelines

Under PPP, small and medium-sized businesses were able to borrow money during the early months of the COVID-19 crisis. Business owners could borrow up to $10 million, though the average loan was closer to $100,000. If you qualified, you could use these funds to cover payroll, group healthcare benefits, rent, utilities and interest on mortgages and other debt for your business.

The key advantage of this program is that if you spent at least 60% of the loan to cover payroll, the government would forgive the debt, so you wouldn't have to pay the money back. To receive PPP loan forgiveness, you need to submit an application with the Small Business Administration, or SBA, showing that you used at least 60% of the funds for payroll.

Loan limitations

While the PPP program has some appealing benefits, it also has some significant limitations to plan around. First, PPP loan forgiveness only applies if you spent at least 60% of the money on payroll. For businesses that spend more budget on rent, inventory and other expenses, a PPP loan may not be as helpful.

Also, PPP loans require you to not reduce staff or lower wages by more than 25%. If you do, it reduces the forgivable amount of the loan. This limits your ability to manage overhead.

Finally, the PPP loan program only has so much capacity. When it first launched, business owners who applied faced long delays for qualifying. In addition, the program ran out of funds and stopped accepting applicants on Aug. 8, 2020. Unless the government approves more funds for this program, it's no longer possible to take out a new PPP loan.

Other funding sources

If your business needs financing beyond what you received through the PPP, there are other ways to raise money, both during the COVID-19 crisis and at any other time.

  • Bank term loans: With a standalone term loan, you can borrow money with no strings attached. That means you can use the funds for working capital, buying inventory, refinancing other debt and covering payroll.
  • SBA loans: Besides overseeing the PPP, the SBA also helps business owners qualify for traditional bank loans. They guarantee part of the loan repayment, which makes it easier for you to qualify.
  • Commercial equipment or property loans: If you borrow money to buy equipment or real estate, you could secure the debt using the property. This increases your chance of qualifying and may come at a lower interest rate.
  • Lines of credit: A business line of credit gives you the flexibility to borrow money when you want, pay the funds back and then borrow again at your convenience. Even if you don't need money now, it could still make sense to launch a line of credit for the future.
  • Invoice factoring: If you need cash as soon as possible and can't wait for clients to pay their outstanding invoices, you could factor them. When you use factoring, a financing company gives you an upfront payment for the invoice and then collects from your clients.

Practice good financial management

Besides considering other types of financing, these best practices can help through this difficult stretch.

  • Reconsider your costs: Whether it's cutting down on travel, temporarily freezing hiring, reducing training or pausing investments, reconsider unnecessary costs wherever possible during periods of downturn.
  • Study cash flow trends: Where is your cash going, and when does it come in? Examine your cash flow statement to see trends and possible issues—for example, if you tend to run short of cash in the middle of each month as you wait for payments.
  • Accelerate receivables: See what you can do to collect on your invoices and bills more quickly. Sending more frequent reminders, setting an earlier payment deadline or giving discounts for early payment can put cash in your hands sooner.
  • Extend payables: On the other end, push to pay your bills as late as possible to improve cash flow.
  • Refinance debt: If you have outstanding loans, see if you can refinance to take advantage of today's extremely low rates.

As you figure out your plan, consider meeting with your business banker for advice. They can help you compare your options and explain what you need to raise financing during these difficult economic conditions.


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This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.