Through no fault of your own, the time may have come to apply for a small business loan.

The COVID-19 pandemic is causing a lot pain from a health and economic standpoint.

One positive outcome from this current emergency is the spirit and resolve of our family, friends and neighbors. State and federal government entities are also providing a source of hope through small business loans and other financial programs.

Here are five ways for your business to effectively apply for financial assistance during this difficult time.

Stay cautiously optimistic about EIDL program

A large number of applications for the Small Business Administration’s Economic Injury Disaster Loans crashed the program’s website. That gives you an idea of how many small business owners are asking for help.

Unfortunately, the EIDL is oversubscribed and applicants are being capped to smaller-than-promised loans.

Funding has been approved for the 2ndround and we are seeing many of our small business clients receive the loan proceeds.

Apply for PPP loans through Main Street Lending Program

The Main Street Lending Program will assist larger businesses with financial relief.

Eligible companies may tap the program and receive PPP loans and other types. This is particularly beneficial to businesses that may not be eligible for certain forms of assistance.

Be aware of your eligibility

Companies backed by equity investors are classified as part of a bigger organization, disqualifying them from PPP loans.

For instance, if an investment firm owns a large stake in your business and includes it within its portfolio, you may exceed the employee limit that’s set for PPP eligibility. Additionally, you are not eligible for the Paycheck Protection Program loan if you are taking advantage of the Employee Retention Credit.

The rules are subject to change, but it’s important to keep this information in mind.

Submit error-free PPP applications

It goes without saying that your application must be error-free.

However, pay particular attention to avoid PPP application errors. Unfortunately, some businesses are hamstrung by unclear guidance regarding PPP applications. For instance, one common mistake is that applicants list the incorrect amount of pay costs. The PPP applications asks for gross payroll, including commissions and cash tips. It does not, however, include employer FICA and federal taxes.

Think twice about accepting reduced PPP

Remember, these types of loans are intended to cover 2 ½ months of payroll.

Some businesses are taking on reduced loans, sometimes just for 1 ½ months.

It may seem counter intuitive to decline it with the hopes of getting a full loan amount. Keep in mind, however, that businesses are only allowed to receive one PPP loan. You may be better served seeking out a lender that can provide the full amount instead of the alternative.

Tax impact and strategic planning

The IRS recently announced guidance in Notice 2020-32 ( surrounding deductible expenses related to the Paycheck Protection Program under section 7(a)(36) of the Small Business Act.

If you have received the Paycheck Protection Program loan and the loan is found forgiven under the requirements, you may not deduct certain expenses including rents and wages that were paid using the PPP loan funds.
Organizations receiving the loan are not required to report the loan as income; therefore, the related expenses paid with the loan are also not an eligible deduction. This is meant to prevent a double benefit for excluded income and a tax deduction. Be sure to track all expenses separately that are paid using the loan through your accounting systems.

Free money = non-deductible expenses.

5 Star Accounting & Business Solutions, LLC understands the complexities and challenges facing every type of business regardless of its size. You can be reassured that we will spend the time to look carefully at your situation and provide steady guidance in an uncertain time.

We will work together to identify areas of benefit and make recommendations that will keep your business on the trajectory of success. Our services and solutions are designed to support, protect and improve your business operations.

Please do not hesitate to reach out to us today to learn more about how we can help during this difficult time.