How Some Home-Business Owners Can Get the Government's New PPP Loans
4 tips for the COVID-19 stimulus aid changes designed to help entrepreneurs
The Biden administration is offering a lifeline to small-business owners who've been struggling to stay afloat during the pandemic and the aid can be especially helpful to some with home businesses. The need is urgent: 44% of small business are at risk of closing, according to the Alignable Research Center, a referral network for small businesses.
But you need to act fast to apply for this new assistance from the U.S. Small Business Adminstration's (SBA) Paycheck Protection Program (PPP), originated by Congress and the Trump administration in spring 2020.
The New PPP Rules for Small Businesses
"We made a decision to live like warriors — to do whatever it takes to protect our revenue and hence our people."
Now, the PPP loans are especially geared to businesses with under 20 employees (including sole proprietorships) and there's a 14-day application window for them, running through March 9. (The overall PPP program is due to end March 31, 2021.)
Some self-employed, independent contractors and sole proprietors are also eligible to get larger PPP loans than before. And the Biden administration is setting aside $1 billion for businesses without employees that are located in low- and moderate-income areas and owned by women and people of color.
But not all home-based business owners or owners of other companies with under 20 employees will necessarily qualify for the new rules.
The Rules Keep Changing for Some Owners
Amy Renz, 51, is CEO of the 12-year-old Marblehead, Mass.-based Goodness Gracious Treats, a small-batch handcrafter which makes "human-grade" dog and cat treats (that means all the ingredients must be edible by humans). Her business qualified for the first round of PPP loans and Renz was grateful to receive the money. But before the Biden administration changed the rules again on March 3, she thought she would be excluded this time.
The new PPP rules were going to demand that a business with fewer than 20 employees (as Renz's is) lost at least 25% of gross revenue in any quarter of 2020 compared to that quarter in 2019. Gross revenue looks at total sales dollars. Net income is the profit from the business — gross revenue minus the sum of goods sold and expenses.
"We do not qualify because we don't meet the revenue loss requirement, though our net income is certainly down for COVID-related reasons," Renz said about them.
But on March 3, the Biden administration relaxed this tough standard for solo proprietors and independent contractors. Now, those small business owners have the option of using gross income or net profits when applying for PPP loans.
Says Renz: "We made a decision to live like warriors — to do whatever it takes to protect our revenue and hence our people. So, we invested last year and this year in our direct-to-consumer efforts, specifically for a better e-commerce platform and marketing. These investments were necessary to protect our revenue, but coupled with rising costs, it further hurt our bottom line."
Renz saw their small wholesale clients (independent pet supply stores) shut their doors during the pandemic; some permanently. Her company's sales to grocery stores stalled, too, as stores prioritized human essentials like toilet paper and cereal.
"In 2020, we saw the prices of chicken, beef and pork all jump. There was some leveling, but chicken prices have risen again. Currently they're about forty-five percent above pre-COVID prices and climbing," she says. "Not only are we impacted by rising food prices, but also by the higher costs of manufacturing materials —things like nitrile gloves that we need for safe food handling which have soared about a hundred and fifty percent."
The Catch for Forgivable PPP Loans
Steve Silberberg, 59, the Hull, Mass. home-based business owner of Fitpacking, which takes people on backpacking adventure vacations to get fit, got a PPP loan for about $5,700 in 2020. He used the money to pay guides to run trips that might otherwise have been canceled due to low participation.
But the PPP loan wasn't forgivable (when all or some of a loan can be forgiven or deferred). That's because forgivable PPP loans require applicants have traditional employees. Companies like Fitpacking that pay their staff as contract employees don't qualify for them. Fitpacking's business is seasonal and not busy enough to keep people on as full-time employees. Silberberg has a staff of five, along with a dozen guides, but none are full-timers or employees.
Silberberg will skip applying for a PPP loan this time because it won't be forgivable. "I won't be taking on more crushing debt this round, even at low interest rates," he said.
But Renee Johnson, a senior adviser with the Public Private Strategies public policy research firm, says the new PPP rules could be a big help to many microbusinesses, especially minority-owned ones. Johnson notes that 95% of Black businesses are sole proprietors.
Apply for a PPP loan if you could use the assistance, says Johnson.
"Even if you think you're not eligible, apply. Find resources in your local community, go to your local bank," she says. "If you have a small business account with your bank, they should be able to assist you and help you through this process. It is really important that small business owners take this moment to [secure] this relief."
4 Tips for Applying for a PPP Loan
Nishank Khanna, CFO of Clarify Capital, a lender that serves small businesses including mom-and-pop shops, offers these four tips for applying for a PPP loan this time around:
Applying to more than one lender ultimately rewards the bank that moves quickest, which could be advantageous for you.
1. Check your documentation. Incorrectly filled-out documents can delay the PPP process. The easiest way to avoid a setback is to review your documentation to ensure it's been completed correctly.
2. Apply through multiple lenders. That's because every bank has its own process for PPP loans.
"It's likely some lenders will be more efficient and quicker than others when it comes to the loan approval process," says Khanna.
Once the SBA assigns you what's known as a Preferred Lending Partner number, you won't receive multiple loans from different lenders, despite applying through multiple banks.
Khanna says applying to more than one lender ultimately rewards the bank that moves quickest, which could be advantageous for you, since speed is of the essence.
3. Go through local banks and credit unions. They should be your first stop, says Khanna, because the government has a dedicated pool of funds it is distributing to small lenders.
4. Leverage small lenders you have relationships with. "It might sound cliche, but often, with larger banks and financial institutions, you really are just a number," says Khanna. "If you have a lender who knows you and is willing to walk you through the process, you're at a huge advantage."
The Small Business Administration and Public Private Strategies Institute are holding a series of free PPP webinars from now through March 8 to explain the new rules and each has a specific focus (women business owners; minority business owners; self-employed business owners; restaurant owners; veterans and LGBTQ business owners).