Moving beyond PPPs: Imminent impacts for small businesses
As the economy nears a rebound from the pandemic, small businesses are still struggling to stay afloat. In the past few weeks, more than 8,700 small businesses across the country have written to Congress, all with a unified and pressing concern, saying they are quickly running out of the resources and time to keep their businesses alive.
Often referred to as the heartbeat of the U.S. economy, small businesses are still feeling the devastating effects of COVID-19. Two in three small businesses ran out of resources, revealing they only had enough money for three months of spending. While many homeowners believe it will take more than six months to fully recover, others are on the verge of going out of business for good.
the Paycheque Protection Program (PPP), created on March 27, 2020 and supported by the Small Business Administration (SBA), is a federal conditional repayment loan program created by the CARES Act that ran until August 8, 2020. The loan was created to help small businesses nationwide. that were negatively impacted. The objective of the PPP loan was to provide the necessary resources to maintain the wage bill, bring back employees on leave or laid off and cover eligible professional expenses.
The Paycheck Protection Program Flexibility Act (PPPFA) was enacted on June 5, 2020, providing for much needed PPP reform, such as changes to the 75/25 rule. Previously, at least 75% had to be used on salary costs and no more than 25% on business continuity expenses. Since its inception, PPPFA has moved to a 60/40 rule to give more leeway for business continuity.
As we enter a new quarter and look even deeper into the start of 2021, it has become increasingly important for small businesses to reassess what they can do to preserve their business operations, now and for the future. year to come, even with the uncertainty in the atmosphere. Here are some key points for small business leaders to consider:
Defend your business
Contact representatives from your local government and Congress to urge them to pass a bill that allows small business owners to deduct business expenses paid with P3 funds to help cope with the financial pressure of the pandemic. created. The PPP loan is intended to help businesses get through this, not to provide an extra layer of tax penalties that put small business owners in deficit during this difficult time. Find resources with industry specific associations or groups who can advocate on your behalf.
Cash reserves are crucial for the continuity of your activity
Much of the business community initially assumed the pandemic would be “short-lived” on the assumption that having 2.5 times their 2019 monthly average wage costs would be sufficient. Unfortunately, that was not enough. COVID-19 was proof that every business needs a “rainy day fund” that goes beyond the typical 2-3 month emergency fund. What leaders have learned is that extreme safeguards need to be in place to mitigate risk. Currently, many companies have exhausted their PPP loans, with 30% of homeowners saying that without additional government funds, they will exhaust all of their cash reserves by the end of the year.
When it comes to canceling a PPP loan or taking out additional loans, the adage is clear: “don’t bite more than you can chew,” well, if you do, chew slowly. As your business continues to grow and evolve, so should your savings and expense calculations. Forgetting to update this information on a quarterly and yearly basis can unfortunately put you at risk that you did not intend to take.
Understand the rules of engagement
The Paycheck Protection Program provided business loans to cover eight or twenty-four weeks of payroll and expenses. Loans are repayable if borrowers spend at least 60% of the proceeds on personnel costs and no more than 40% on business continuity expenses. Even if a business fails to fully utilize PPP funds, a partial discount can be an option as long as the funds used meet the 60/40 rule.
There are two questions business owners should ask themselves:
- Am I entitled to a loan discount?
- Do I have all the documents to request a loan forgiveness?
Business owners who have chosen the forgivable loan option through the Paycheck Protection Program still struggle to understand whether certain business expenses covered by the funds used are deductible, even if they have not. still asked for the discount. Unfortunately, the choice can come down to deciding whether to deduct expenses or pay more taxes. As critical tax deadlines approach, it’s imperative that owners stop and assess where they are and what decisions will be best for their business as the fourth quarter approaches. The reassessment will determine whether the companies sink or swim.
The service of your debt
PPP loans have been used as a safety net for many businesses across the country. Businesses are in trouble now that they have run out of funds. With rumors of a second round of stimulus support currently in play, taking on new debt without understanding how the new loan works and what the repayment parameters are, is something many businesses will want to pursue with caution.
Despite the reopening, many employees will continue to work remotely. Take for example Google’s extended work-from-home policy. Now extended until summer 2021, this major move by one of the world’s largest companies has triggered a spillover effect on businesses large and small. This decision also signals two very important things: 1) the adoption of remote work gives companies access to a larger pool of talent, and 2) the permanent work-at-home solutions and hybrid work models that were formerly a “benefit at work” are strongly envisioned for the future. .
Many businesses are between a rock and a hard place when they decide to take on more debt, close their doors temporarily or for good. While some businesses are considering additional resources such as using a PEO (businesses using this service are 60% less likely to have closed permanently), other businesses need to do what makes the most sense, and decision is not easy.
Doing a thorough assessment of the resources available from your local, state and federal governments, assessing future costs, and determining the current state of your business will help you decide on next steps for the next quarter and the new year – even if we ‘ are still at the heart of COVID-19 far beyond anything we have ever imagined.
John McFarland is senior vice president of customer development, VensureRH.