- The Paycheck Protection Program, a federal forgivable loan program for small businesses affected by coronavirus, was introduced rapidly in April and has undergone significant changes in a matter of weeks.
- Small businesses that may have operated informally were left at a disadvantage when they applied for the program.
- It pays to have a local banking relationship, know a CPA and maintain a bank account for your business.
The Paycheck Protection Program may have been an exercise in frustration for small-business owners, but here's the silver lining: They might be better equipped to weather the next crisis.
The federal government rolled out the so-called PPP in April as coronavirus and the ensuing stay-at-home orders took their toll on small businesses. The forgivable loan program was originally intended to cover eight weeks of payroll costs, plus mortgage interest, utilities and rent expenses.
Most recently, the Treasury Department and the Small Business Administration announced a slate of upcoming guidance tied back to the Paycheck Protection Program Flexibility Act that President Donald Trump signed last week.
That new legislation now gives owners up to 24 weeks to use their loan proceeds and allows for forgiveness if at least 60% of the funding goes toward payroll expenses. Partial forgiveness is also now an option.
Entrepreneurs who navigated the program — and its many changes — on their own learned tough lessons, which might make them stronger in the long run.
"They want to enforce better business practices," said Sheneya Wilson, CPA and founder of Fola Financial in New York. "This pandemic — we've never experienced this in our lifetimes, but it does show how sensitive you are."
Here are five lessons that entrepreneurs can apply to their businesses post-PPP.
Cash is king, especially in a crisis. Entrepreneurs should identify where they can afford to cut their expenses without hurting their business, said Wendy Cai-Lee, CEO of Piermont Bank in New York.
Emergency funds aren't just for individuals, either. "We're all coached to have three to six months in savings, but business finances need that, too," said Wilson. "Three to six months is also a good practice."
A rainy-day fund, along with a line of credit for the business, can give a small business a buffer during a downturn, she said.
Aside from setting up a line of credit for your business, go ahead and open that business banking account. Meet your local banker, too.
That's because during the first rollout of the PPP, banks were only accepting applications from existing business clients.
"Most people see the bank as a transactional place," said Megan Gorman, an attorney and managing partner at Chequers Financial Management in San Francisco.
"But establishing the relationship at the bank is huge," she said. "It means you'll have an advocate, and as your bank grows, you'll have access to liquidity."
Aside from your banker, work with a CPA who can help you wrangle necessary tax documents.
The PPP, as well as other small-business loan programs, requires owners to bring tax forms along when they apply.
"Clients who don't have a CPA and rely on themselves to get their books together and don't have them done properly are stuck," said Wilson at Fola Financial.
Keep formal books and records for your expenses.
CPAs have recommended that PPP recipients document their use of the funding, as well as keep the cash in a separate business banking account.
Solid bookkeeping also makes life easier during tax season.
"I can't tell you how many times I've talked to self-employed people who keep receipts in a box and hand them to a CPA during tax season," said Gorman at Chequers.
Key questions for business owners in this crisis include whether Covid-19 has changed the way buyers and customers do business, said Cai-Lee of Piermont Bank.
"Aside from stress-testing themselves, entrepreneurs should understand the impact of their constituents," she said. Business owners should also bear in mind how their suppliers might be affected in a crisis.
Meanwhile, reopening will require a strategy, as even when stay-at-home orders lift, businesses could still be a long way from running at 100%.
That's going to affect their revenues, and it should be a consideration.
"Is it a partial reopening?" said Cai-Lee. "If you're a restaurant, you won't be doing three turns of the table at night — you won't be able to accommodate as many people."