The coronavirus pandemic made cash flow management for America’s small business owners really difficult. To help out, the government launched the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which included the Paycheck Protection Program (PPP). If you need capital for your business, what’s the best PPP alternative now that the program has ended?
Many businesses are struggling to cope in the aftermath of the pandemic and still need extra capital, though. Recovery to 2019 pre-pandemic turnover levels may take up to five years, according to McKinsey. And to make things even harder, millions of businesses are now having to pay back their PPP loans despite lower sales volumes.
Let’s look at the PPP alternative options currently available to businesses as well as answers to frequently asked questions about PPP and the other COVID-19-related loan programs.
So, what business financing options are open to small businesses that need capital now? Below, we cover some of the most popular PPP alternatives available to would-be borrowers.
You could apply for a small business loan from your bank or credit union. Loan amounts offered will vary according to your turnover and your credit score. Some credit unions and banks will consider applicants with a score of 650, but most financial institutions want a score of 680 or more.
Be aware that startups and early-stage businesses often don’t meet loan eligibility requirements.
With a business credit card, you can meet pressing business expenses today and defer payment for a month or more. Like with your personal card, you get a maximum amount you can spend (your “credit limit”). You’ll have to pay interest on your balance unless you pay your statement on time and in full each month.
Business credit cards are relatively easy to come by if you have a good credit history. In most cases though, you’ll be able to borrow more if you successfully apply for a loan. Interest rates on loans likely will be lower too.
You have to take good care of your business credit card account. Remember that, unlike a small business loan that has a fixed repayment term, your credit card provider can reduce your limit or withdraw the facility from you at any time without notice.
If your business needs capital now, it may be quicker for you to apply to your bank for an overdraft instead of a small business loan or credit card. An overdraft is like a credit card linked to your bank account that you only use when your bank balance is $0 or less.
Let’s say you have a balance of $100 and you buy something that’s worth $500. Next time you log in to your account, the balance will be -$400.
Just like with a credit card, overdraft limits are capped. You’ll pay a facility fee for the overdraft and interest on the amount you’re overdrawn. And, just like with a credit card, your bank can reduce your overdraft limit or remove the facility from you whenever they want.
A popular PPP alternative is invoice factoring. When you issue an invoice, you send it to your customer and a copy to your factorer. Your factorer pays you between 80% and 90% of the value of your invoices within 24 hours. When your customer settles the bill, you then get the remainder of the balance minus their factoring fee. Invoice factoring is only suitable for businesses that sell to other businesses.
Payroll funding is a type of short-term loan you can use to meet your employees’ wages if you’re short on capital. Mainly used by staffing agencies, some providers are now starting to offer it to businesses in other sectors.
Did you know that you can sell your business assets, equipment, and machinery and still continue to use them? This is called equipment refinancing. You must own the equipment you want to sell outright to apply for it though. This is a popular PPP alternative for companies in the manufacturing sector.
A valuer comes out to inspect the assets you’re putting up as collateral and tells the prospective lender how much they’re worth. You can then borrow up to 90% of the valuer’s estimate over a period of up to five years.
Many businesses offer credit to their customers. That means you can stock up on inventory now and have 30 days to sell the goods before you pay your supplier. Pair it up with invoice factoring if you issue 30-day invoices to your customers, and this could free up a lot of cash in your business.
The Small Business Administration offers:
SBA 504 loans: For real estate projects and the purchase of business equipment and machinery with repayment terms of up to 25 years
SBA 7(a) loans: For working capital, debt refinancing, and asset purchases
The SBA also helps arrange microloans for up to $50,000 with a repayment period of up to six years. They consider applications with credit scores of 620. But be aware that it can take up to 90 days to get the money.
Working capital advances help you to bridge cash flow gaps. They are often used to cover costs when seasonal variations or inventory/asset purchases are affecting your finances. These advances are usually paid back in daily, weekly or semi-monthly repayments.
A business line of credit is a type of revolving credit. You’re given a credit limit and can withdraw however much you need, whenever you need it — as long as you don’t exceed the limit. When you pay back your balance, your credit limit reloads and can be used again. You only pay interest on the funds you withdraw.
A line of credit is usually best for covering short-term business needs, like payroll or necessary purchases.
Below, find answers to other frequently asked questions about PPP and the other COVID-19 related loan programs.
Built into the PPP loan program was “forgiveness”.
As long as you spent no more than 40% of the capital you received on non-payroll costs like rent, mortgage interest, and utilities, you could apply to have the loan written off in its entirety. But that’s only if you kept all your staff on the books and didn’t reduce how much you paid them during the covered period. If you didn’t quite do all that, you may have been entitled to partial forgiveness.
Unfortunately, loan forgiveness applications are no longer accepted.
Businesses could claim the Employee Retention Credit (ERC), a form of tax credit, during the pandemic.
Qualifying employers could claim up to $5,000 per worker in 2020 and $28,000 in 2021 if:
They had to close their business down fully or partly because of COVID-19 restrictions.
They showed a steep enough decline in income.
Unlike PPP, ERC receipts do not have to be repaid.
No. The deadline for applying for a COVID-19 Economic Injury Disaster Loan (EIDL) was December 31, 2021.
No. The Main Street Lending program stopped taking applications on January 8, 2021.
The CARES Act and the Paycheck Protection Program gave small businesses the help they needed during financially trying times. Even though the PPP program has ended, your need for financing might not have. But you still have other funding options. Which one is best for you will depend on your business needs.
Backd provides two PPP alternatives: working capital advances and business lines of credit.
With a working capital advance, you can get between $10,000 and $2 million with no collateral, and with a business line of credit, you can get between $10,000 and $750,000 in funding.
Apply in just three minutes today to get the financing you need as soon as tomorrow.