I was able to speak with a roundtable of experts from Washington, D.C., who shared some information about the PPP updates. Today, I'm going to speak with small business owners who have been directly impacted.
So, one small business owner has successfully applied and is awaiting a response, one entrepreneur has decided not to apply, and another small business has applied and received funding.
So, we'll talk about their experiences, what they've learned, and whether they have any advice for other entrepreneurs out there. I'm speaking with Yolanda, the owner of Iwi Fresh, a farm-to-skin spa in Atlanta, Georgia, and she applied for the PPP and is waiting to hear back, and she'll talk about her experience a little bit.
Hello, Yolanda. It's a pleasure to speak with you. I'm curious, with COVID-19 going on and some of the relief efforts going on, if you've heard of and applied to the PPP, and how did that experience go?
What are the requirements for a PPP loan?
We were ecstatic to learn about the PPP. I work for a large bank, Bank of America, and I believe they were the first to send it to me. So we got it, it was just one form, we filled it out, we sent it in, and we thought to ourselves, "Oh, that was easy."
Then we realized it was a little more in-depth and required a lot more paperwork, so we enlisted the help of our accountant, and my accountant had to take over and assist me in filling out all of the paperwork, getting it all in, and submitting it.
Then we learned on the news that they had run out of funds. We've been out since March 19th, so we've already passed the month mark, April 19th. So, here we are in May, and no money has been distributed to us. We were able to get that because a local company gave us a very small amount of money.
There are numerous opportunities. What I've learned from this is that I need to focus more on my online sales and online products. I have to have that even if the doors are open. I couldn't have put all of my money into a physical store. I'm going to have to really push it.
There's likely a lot of small businesses and entrepreneurs who don't qualify for the PPP or don't see the PPP as the right fit for them, so what's the advice you would give to them? Stay resilient, be creative, and humble yourself enough to ask for help. I think people are so understanding right now of the situations that we're facing, but people can't help if they don't know you need it.
How long is PPP loan approval process?
The application process is very simple, so I filled out the majority of the paperwork in about 15 minutes. We heard back from our banker about a week and a half to two weeks later, at most, that we were approved. We signed the paperwork seven days later, and it was funded the next day.
On a Sunday morning, I received a text message from our local banker in which he simply stated, "You've been approved for the PPP loan "for X-amount of dollars." It gave me the impression that I had temporarily stopped the bleeding, and we'd see what we could do with this money in the future.
Do PPP loans have to be paid back self-employed?
It's a very short-term help, and it's appreciated, but it's very short-term, and I believe it's a bandaid at best for most people in very small businesses like ours.
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If we take out a loan, it must be forgiven. Because, I suppose, one of the other issues is that if I mess up somehow and don't get all of this turned into a grant, I'll have to pay that back. It's said to be a very generous 1% interest rate. Yes, but it must be repaid within two years.
Who is not eligible for a PPP loan?
These loans are guaranteed by the SBA at 100%. They don't require collateral, no personal guarantee is required. New lenders are coming online every day, including community banks, and some FinTech options like Intuit, Kabbage, PayPal, and Square. The SBA has released a sample form, but banks are able to create their own.
What proof is needed for PPP forgiveness?
As a result, the information you see when you fill out an application may differ slightly. But it'll most likely follow the same general outline. The first box you see when you open the application appears to be a simple one.
How is your business run? When you get there, you'll notice that it asks if you're a sole proprietor, an independent contractor, self-employed, a partnership, an LLC, a nonprofit, or tribal.
So let's go over those quickly. A sole proprietor, independent contractor, or self-employed individual will report their earnings on Schedule C of their personal tax return 1040. It's also gonna ask if you're operating as a partnership or corporation, or an LLC.
Can I get PPP loan without a business?
On April 14th, new guidance was issued regarding partnerships and whether or not the partners themselves should file an individual loan application for self-employment. The answer is no, and partners' self-employment income would be reported to the partnership.
Nonprofits that operate as a 501(c)(3), including churches, are also eligible for these types of loans, as are certain tribal or veteran organizations. Then you'll be asked to provide basic information such as your name, address, tax ID number, and so on.
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What was the average PPP loan amount?
We arrive at the loan calculation amount, which begins with the average monthly payroll. Several types of costs can be factored into the calculation. It begins with the gross wages of employees whose primary place of residence is in the United States and is capped at $100,000 per employee.
Other things that are factored into payroll costs include your group health care costs, such as insurance premiums, and retirement benefits. What time period should you use to compute your average payroll?
That could be 2019 calendar data or data from 12 months before the loan date? The AICPA has collaborated with several payroll processing companies to create a special report for this calculation. They are known as PPP compliant reports.
If your bank requests it, they can also provide a master payroll report. The AICPA has created a loan calculator so that you can calculate your own eligible payroll costs. And you can find it at aicpa.org/sba.
If your company is new or seasonal, your calculation period will be different, and you can find information on how to calculate payroll costs on the same website.
The loan is calculated as two and a half times your average monthly payroll plus any Economic Injury Disaster Loan proceeds, but it is limited to $10 million. The next question on the application will revolve around the number of employees.
These PPP loans are typically restricted to organizations with 500 or fewer employees. Some exceptions apply to SBA size standards, affiliation rules, and franchise considerations. So, if you have any questions about how the 500 employee limit is calculated, please consult your CPA.
It is also based on the average number of employees, so you can use the same time period as your payroll calculation. Alternatively, if you're a new or seasonal employer, double-check the guidance on those calculations.
The purpose of the loan will be asked next, and in general, the loan is to be used for payroll, lease payments, mortgage interest, or utilities for the defined period of February 15 through June 30. To maximize the amount of loan forgiveness available for your loan, 75% of the loan proceeds must be used for payroll.
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The following question will revolve around ownership information for those individuals who own more than 20% of the company. The application will then ask you some questions that may disqualify your organization. In general, they'll ask you questions about loan defaults on SBA loans, criminal convictions, and similar topics.
This sets the stage for the following section, which is about certifications and authorizations. You should carefully read those to ensure that you agree to all of the certifications and authorizations. They'll ask you questions like, "Does your current economic situation necessitate the loan request?"
You must also certify that you will use the loan for business purposes and that you will provide the documentation that your lender requires for the loan proceeds and loan forgiveness. As a reminder, certain PPP loan information is subject to Freedom of Information Act requests, so keep that in mind as well.
You'll be ready to submit once you've reviewed all of the documentation. In addition, the AICPA has created a list of documents that you should include with your loan application. These are also available at www.aicpa.org/sba.
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