A PPP Loan (Paycheck Protection Program) is designed to provide a direct stimulus for small businesses to keep their workers on payroll during the Covid-19 pandamic. PPP loans will be available again in 2021 and 2022, thanks to a new round of funding. While these loans have the possibility for complete forgiveness, they aren’t appropriate for every small business.
The SBA’s existing 7(a) loan program (the agency’s main program) has always been a vital financial tool for small businesses, and it remains so in 2021. These loans have all of the necessary terms, lending amounts, and approved purposes to be the better financing option in a variety of circumstances. Before you apply for a PPP SBA Loan in 2021 or 2022 it is important to keep a few things in mind. Below, we will discuss how you can apply for this loan and what to keep in mind.
The paycheck protection program is designed for companies with less than 500 employees for the first draw PPP loans. For the second draw PPP loans you cannot have more than 300 employees. Your business needs to be still open and operational and should at least be operational before 15 February 2020. The following steps should be taken in order to apply for a PPP loan:
- Acces your application
- Confirm or ad business information
- Ad new requirements
- Confirm ownership of the company
- Confirm additional information
- Upload documents
- Check for additional instructions from your lender
The approval for your PPP loan application varies depending on the lender. In general, it takes around two weeks before the lender disburse funds. Sometimes, additional information is needed which will delay the process. Another factor that can delay the process is the fact that a new round will be introduced: it will take longer for the lenders to complete all requests.
7(a) Loan Program or PPP?
When it comes to spending, SBA 7(a) loans offer a lot more flexibility. PPP loans are more limited, and full forgiveness is subject to tougher restrictions. If you wish to be eligible for full loan forgiveness, you must spend at least 60% of your loan on payroll expenses; anything less will limit your eligible forgiveness proportionally.
A SBA 7(a) loan is a better option if you’re wanting to expand your firm or finance working capital needs. A PPP loan is a better option if you need money to pay your staff or cover your rent. You should also think about when you’ll use your loan. You can spend the funds on your own schedule with an SBA 7(a) loan. You must use all of your cash over the 8 or 24-week covered period to qualify for forgiveness with a PPP loan; any money spent outside of that time limit will not qualify for forgiveness.
SBA 7(a) Loan Qualification
If you want to get help from the Small Business Administration, you must meet the following criteria:
- Be a for-profit company based in the United States.
- As a small business, you must meet the SBA’s size requirements (varies by industry)
- You don’t have similar credit anywhere else
- Not work in an ineligible industry, which includes certain passive enterprises.
- Not have caused the government to lose money on a federal debt in the past (i.e. defaulted student loans or tax debt without resolving that debt)
- Meet the character standards for all business owners with 20% or more ownership, which include prohibitions on businesses held by people with specific sorts of criminal backgrounds.
- A US citizen or lawful permanent resident must own at least 51% of the property.
Before you apply for a SBA 7(a) loan, it is important to keep in mind that PPP loans may be fully forgiven if the loan proceeds. (If they are used for payroll) Outside the PPP loan program, however, 7(a) loans are not forgivable. The SBA’s loan charge guidelines helps to protect small business borrowers from paying excessive fees. Some are permitted, while others are not. However, small business owners will discover that the fees and closing charges on these loans are generally lower than those on other commercial loans.
If your business has been affected by the coronavirus, you should start looking for low-cost funding through the Paycheck Protection Program and the Economic Injury Disaster Loan program. If your firm has been spared from the pandemic’s harmful effects, an SBA 7(a) loan is a great way to cover working capital or develop your business at rates that other lenders, such as online lenders, can’t match. At the end of the day, the pandemic’s influence on your organization, as well as your unique circumstances, will determine which credit package is best for you.