You’ve got your PPP loan, spent it right, and hopefully you’re eligible for a full discount. Congratulations!
Here are six steps you can take right now, after your P3 loan, to ensure your business continues on the path to recovery.
1. Master your accounting
If applying for PPP was difficult because your accounting was not up to date, now is the time to address this issue. You’ll either want to develop a system for you (or an employee) to keep your books up to date, or you’ll want to work with an accountant or accounting professional who will do it for you. Either way, your bookkeeping shouldn’t be something that waits until tax time. At a minimum, records should be entered and accounts reconciled monthly if you just can’t tackle them daily or weekly (which I recommend).
2. Make sure your cover
Every small business needs insurance coverage ranging from workers’ compensation to general liability and maybe even a commercial auto policy. Depending on the nature of your business, the industry you are in, and a number of other factors, this is probably a good time to assess your business insurance needs to make sure you have the coverage you need.
3. Separate business and personal finance
Many businesses have had difficulty with their PPP loan application because it was not clear what was a personal expense and what was a business expense. It is just not a good idea to combine funds. If you haven’t already, open a business bank account. You should know that there are many small business lenders out there who won’t even consider your small business loan application if you don’t have a separate business account.
4. After your PPP loan, update your business plan
Your business plan should be a living document, updated when conditions change. Many business owners find that they need to revise their business plan to adapt to new economic realities. You may find that your business landscape is changing rapidly; your business plan must adapt.
If you’re struggling to change your business approach, take advantage of free help from SBA resource partners such as Small Business Development Centers (SBDCs) or SCORE. Both offer free mentoring and other resources for small business owners.
5. Consider a second draw PPP loan
If you haven’t secured a second PPP loan, you may be able to apply for one. The rules for Second-draw PPP loans are a little different from first draw loans. You will need to demonstrate a reduction of at least 25% in revenue in a quarter of 2020 compared to 2019 (or year over year). If you qualify, however, you can get a second round of funding which may also be forgivable.
Business owners who are self-employed may find that they qualify for more financing the second time around as they can now calculate their loan amount based on gross income rather than net profit. And businesses with a NAICS code that starts with 72 (like restaurants or hospitality businesses) can receive 3.5 times the average monthly payroll, instead of 2.5 times the average monthly payroll as in the first round.
6. Line up a line of credit
Many small business owners are still struggling with cash flow. Even those with strong incomes may find that their customers pay more slowly. When businesses can’t collect from other businesses, it can create a domino effect that impacts suppliers and sellers.
A line of credit can smooth your cash flow while giving you peace of mind. You will only pay interest on your outstanding balance. This means you won’t have to borrow before you need it. The best time to get a line of credit is before you need it urgently.
7. Get a business credit card
A business credit card provides a line of credit that is available when you need it. Even if you pay off your balance in full each month, you will have more time to pay for the items you charge, depending on when you make the purchase. And if you need to take advantage of your card’s line of credit, your interest rate may be lower than other types of quick finance.
Finally, many cards offer lucrative rewards, including cash back or points that can be used for travel. (We will be traveling again at some point!)
8. Consider an EIDL loan
If your business is still struggling, an Economic Disaster Loan (EIDL) can provide critical financing at low cost. Your claim will be assessed to determine “economic harm,” so this SBA loan is not for businesses that have not been affected by the pandemic. The SBA recently raised the limit for EIDL due to the COVID-19 crisis from $ 150,000 to $ 500,000. The interest rate is 3.75% for 30 years. The SBA requires acceptable personal credit and collateral is required for loans over $ 25,000.
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