Boy it’s been a crazy couple of weeks, hasn’t it?!
In the US, we’re nearing the one-month mark into the COVID-19 epidemic. We’ve experienced shock, hysteria, a crazy political scene, grass root comradery efforts, and so much more.
I don’t know about you guys, but I’m spent. This thing hits so many levels of emotion and I’m ready to breath and zen out for a bit. Thank God turkey season starts next weekend in Colorado! Hopefully we won’t undergo a total lockdown to the point hunting public land isn’t allowed.
All of that aside, probably the biggest discussion in the business finance world right now are the PPP and EIDL loans.
Payroll Protection Plan
Economic Injury Disaster Loan Program
I’m going to go through some high-level considerations for you before you get excited about these things and start filling out applications.
Then at the end of this video, I’m going to give you some links to check out resources related to these loans.
Together let’s go through the process on how you need to approach these things and determine if they are the right options for you and your business.
Last week I did a webinar on ‘business continuity planning.’ In it I discussed the steps you need to take to evaluate your personal risk tolerance as the owner of your business; how to triage your finances; tactics to leverage your non-financial assets including employees, customers, and vendors; and how to use this information to best position yourself to thrive through this disruption. I’ve provided a link below so before you do anything else in your business, go watch it. You won’t regret it.
As far as the financing that is available, there are a lot of nuances as to how the money can be used, what portion of it, if any, can be forgiven, how long payments can be deferred, and so on. There are a number of resources out there to help you through this, including the ones on my Facebook page, but I highly suggest you speak with your accounting, banking, and finance professionals to build the best strategy for you.
Let’s get started:
The first question you need to ask yourself is, “will my business stay open through the next few months and beyond?”
There are a lot of seasonal businesses out there who don’t even know if they are going to open their doors this summer. This could be because they have a national or international target audience, government mandated closures to parks, or a super short selling season. If this is you, and in order to be in a position to rebound next year, it could be in your best interest to close things down, find other income, and reopen next year. Do not try and force things this year, especially if doing so will exhaust your cash reserves. It’s okay to say “not this year.” Don’t feel bad about it… Know it’s a good, safe decision, and protecting you and yours is what matters most.
It makes no sense to take out money that will have to be paid back if you don’t plan to generate income OR are faced with a position to close entirely.
Assuming you are able to keep the doors open, the second consideration is: Do you need money to float until the rebound happens and revenue starts rolling in. If so, funding might be a good option.
The EIDL program offers a $10k grant for small businesses with under 500 employees, self-employed, contractors, and more. The application takes less than five minutes and supposedly the money will be deposited into your account in three days. Also, the EIDL program offers a loan as well. This is more common and is the relief loan issued during natural disasters. Payments can be deferred for up to one year. However, depending on the amount will require collateral and a personal guarantee. So not something you want to take out if you are a ‘going concern’ and potentially in a position to close shop entirely.
The loan everyone is most excited about right now is the PPP loan. There is a potential that a portion of the loan, or even the full loan, could be forgiven. The interest rate for the amount unforgiven is at 1%. This loan can be used to refinance existing debt. Which is way cool and super cheap financing!
The whole purpose of the PPP is to keep people employed. You essentially could have ‘free’ labor from now until the end of June. But there are stipulations to have the loan forgiven.
Looking at your employee base, wages by employee, and your anticipated revenues from now until the end of June: does it make sense to keep FULLY staffed? Not partially staffed but fully staffed. If you take this loan, and they determine you don’t qualify for the forgiveness, you will need to pay it back.
Depending on your situation and your ability to absorb the loan, should it not be forgiven, then it may make most sense to furlough your employees. Also, the reason I say wages per employee is, depending on your unemployment insurance, their weekly unemployment could be better than what you’d be able to pay them. So, it could be in their better interest as well.
Assuming you are a business who has been open, will continue to stay open, and will fully staff your business anyways, then a forgiven PPP loan could be a very good option for you. With the PPP loan you’re going to need to first apply for the loan and then, later, ask for forgiveness. It’s going to be super important you have your ducks in a row, and for your recordkeeping to be on point, if you want the whole thing or even a portion of it to be forgiven.
I’ve posted several resources including side by side comparatives, a cloud accounting podcast that answers probably 90% of the most frequently asked questions, how-to apply videos, and much more.
Go to the Ascent Facebook page for these resources. Also, if you’re an outfitter or guide request to join the outfitter and guides business strategy Facebook group and engage with over 50 other guides from across the nation. There’s some great collaboration taking place so join the club and learn from others on how they’re handling things.
Wherever you are watching this from, leave a comment below, and stay the F at home! I’m Zeb Smith with Ascent. Thank you for watching!