PPP Small Business Loans

by Kieran Daly
December 21, 2022
PPP Small Business Loans

The Paycheck Protection Program (PPP) was established as part of the March 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act. This $2.2 trillion stimulus was designed to offset the early economic impact of large-scale social distancing during the COVID-19 pandemic. A revitalization of this plan was passed in December 2020, opening the way for the second round of PPP loans. These applications were open through May 2021. 

Many companies across the United States are wondering if another round of this small business financing will be available anytime soon. Let’s take a look at what is still relevant concerning PPP loans in 2023, including how to apply for PPP loan forgiveness while also highlighting Small Business Association (SBA) loans and other financial resources (like Backd) that can be great alternatives to PPP loans for those in need today. 

Is PPP Still Available in 2023?

The SBA stopped accepting PPP applications on May 5, 2021, which is when the program’s funding had been exhausted. To be eligible for loan forgiveness, PPP funds had to be spent within 8-24 weeks. When businesses completed the SBA PPP loan application, they indicated the time frame in which they would use the money. 

Is PPP money still available for small businesses? If a business still has funds from a previous PPP loan in its bank account today, those dollars will eventually need to be repaid under the loan’s terms. Otherwise, any dollars receiving SBA PPP loan forgiveness must have already been spent during the loan’s covered period. 

Is There Another PPP Loan Coming in 2023?

Another round of PPP funding is not planned for 2023. PPP borrowers can still apply for loan forgiveness if they have not already, though if you have not applied by now, you may also have begun to make loan payments.  Documentation for payroll and non-payroll expenses during the covered period (8-24 weeks) is required for loan forgiveness, among other requirements listed on the Small Business Administration website. You will also find lender-specific information that might be unique to your PPP loan. 

Small business owners loved PPP loans in part because they were forgivable and did not have to be repaid. But another benefit of this program was the amount of the loan. Qualified businesses received 2.5 times the amount they were spending on payroll during the covered period, up to $10 million. 

While forgivable loans in this volume may be a once-in-a-lifetime experience, there are still many other valuable loans that business owners can qualify for through the SBA and other funding sources. 

What Qualifies as a Small Business for PPP Loan?

PPP loan small business size standards were the same as all SBA loan size standards for small businesses. There are three categories of size standard: affiliations, receipts, and employees. 

  • Affiliations: If a larger business was majority-owned by smaller businesses with 500 employees or less, it was able to receive PPP funding. For example, some restaurant or retail businesses owned by their employees at each location took advantage of this to weather the pandemic. Today, businesses applying for an SBA loan must disclose all affiliations when determining if they meet size standards. Learn more about size and affiliation under the SBA

  • Receipts: Your annual receipts are your total/gross income plus the cost of any goods sold. This number is usually required on your small business tax return as well. To apply for an SBA loan you will need to share the sum total of 3-5 years of your annual receipts. If you haven’t been in business for that long, you can multiply the annual receipts you do know to get an estimate. Since PPP loans ended, the SBA has increased the receipt-based size standards by 13% to adjust for inflation. This lets more entities qualify for support as small businesses.  

  • Employees: This is not the number of employees you have at the time of an SBA loan application, but rather your average number of employees over the last 12 months. Every employee must be counted whether they are part-time, full-time, or only lasted one day. If you have been in business for less than 12 months, you will take the average across pay periods. To qualify as a small business, it must have 500 employees or fewer.

In addition to meeting SBA size standards for affiliations, receipts, and employees, a business must have a physical location inside the United States to qualify for an SBA loan. They also must be a for-profit business, independently owned and operated, and not nationally dominant in their field. It is beneficial to be a business of this size, not only because you can qualify for an SBA loan if you need it, but also because you are eligible for special government contract opportunities.  

How Do You Qualify for an SBA Loan?

The SBA offers 3 types of loans: 7(a) Loans, 504 Loans, and Microloans. Here is what small businesses need to know about qualifying for each one. 

SBA 7(a) Loan

The 7(a) Loan is the most common one that US businesses use. These can be short- or long-term loans in amounts up to $5 million.  Funds can be used for any sound business purpose, including working capital, purchasing real estate or inventory, or consolidating debt. 

Borrowers must qualify as a small business under the size standards, and also have to demonstrate their need for a loan as part of the application. This can be through documents and written elements like a business plan.

As part of the application, the SBA will want to see alternative funding sources have been leveraged to support the business, including personal assets. Learn more about SBA 7(a) loans.

SBA 504 Loan

504 Loans are long-term loans for physical assets that promote business growth or job creation. These include buildings, land, machinery, and equipment. A 504 loan can be used to purchase these assets or improve ones that are already owned. But these loans cannot be used as working capital, for paying debt, or to invest in rental real estate. 

504 loans are issued through Certified Development Companies (CDCs) that are local to the area being developed or improved. To qualify, the small business borrower must have a tangible net worth of less than $15 million and an average net income of less than $5 million after taxes, in addition to other factors. Learn more about SBA 504 loans.

SBA Microloan

SBA Microloans are small loans paid to help small businesses and nonprofit childcare centers open and expand. These funds can be used as working capital, as well as to buy inventory, supplies, and equipment. But they cannot be used to pay debt or purchase real estate. The average amount of an SBA microloan is $13,000, though the maximum is $50,000. 

The SBA has a network of nonprofit intermediaries to issue and manage SBA microloans. These community organizations deliver business management assistance experience, in addition, to support applying for funding. All credit decisions for a microloan are made by SBA-approved lenders, who will also set the repayment terms for the loan. Learn more about SBA Microloans

Do SBA Loans Have To Be Paid Back?

Yes, SBA loans have to be paid back. PPP loan forgiveness was unique to that program. The terms and conditions for repayment of each SBA loan will be set at the time it is issued. If you are a small business looking for funding you don’t have to pay back, you can explore grant opportunities. Grants might come from the federal government or from non-government sources. There are lots of grants out there to apply for, and it can take a while to hear back. As much as these are a great option to achieve goals and impact in the community, they aren’t always useful for more immediate needs or to use as general working capital.  

What If I Can’t Qualify for an SBA Loan in 2023?

The SBA is only one funding source for small businesses. There are numerous alternative funding options to choose from including grants, outside equity from investors, and financing from other sources. 

Business financing from a bank is always a long-term loan with fixed repayment terms. These funds are received in a single deposit which then must be managed to sustain the health of the business. Receiving these funds can take several weeks or months depending on the situation, and not all businesses will qualify. Alternative working capital funding through Backd requires no collateral, with term lengths of up to 16 months for amounts ranging from $10k to $2m. 

Sometimes, businesses would prefer not to take out financing and instead keep a reserve available to use if needed. In these cases, an option like a business line of credit can provide more flexibility and utility.

A business line of credit is funding you can use, pay back, and then use again for needs that come up. This is a continuous source of financial support, whether to fund expansion or to have on hand for periods where working capital is not as available.  If you have not used the funds, no payment is required. 

These are just some of the alternative financing solutions small businesses can use to bridge the path between today’s needs and tomorrow’s successes. PPP loans are a thing of the past, and SBA loans are not available to all businesses. If you feel left in the middle without solutions that are tailored to your business needs, Backd is here to help. Explore our financial solutions and get in touch with your questions, we can’t wait to hear from you. 

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