Five mistakes to avoid when applying for them
With the recent passage of the new stimulus law, small business owners have another chance to apply for funding through the Small Business Administration’s Paycheck Protection Program (PPP). The deadline for submitting applications is March 31, 2021. If you or any of your clients wish to apply for a first PPP loan or make a second drawdown, it is essential to prepare a complete and correct application to ensure the smooth running of the transaction. process and efficiently.
My firm has helped over 1,300 small businesses secure over $ 150 million in PPP loans during the first round of PPP funding under the CARES Act, and we are ready to participate in the program again, especially for our second draw borrowers. We have reviewed and managed countless applications and advised hundreds of small business owners throughout the process. Based on this first-hand experience, we would like to share some common mistakes applicants should avoid when applying for a P3 loan.
1. Mathematical errors. A common mistake applicants make is incorrectly calculating their monthly salary costs to determine the maximum amount they can borrow. The PPP aimed to help employers keep their staff on the payroll during the pandemic by covering costs including salaries, tips, vacation pay, benefits, pension contributions and some taxes. Typically, a business can claim up to 2.5 times their average monthly salary costs in 2019 or no more than $ 2 million, whichever is less. Hard-hit businesses, those in the accommodation and food service industries, may be eligible for second-draw loans of up to 3.5 times their average monthly salary costs. Applicants should recheck their calculations or, better yet, get help from a trusted source like a financial advisor, accountant, or payroll manager.
2. Insufficient documentation of 2019 payroll expenses. Another mistake we have found is not submitting adequate documents to justify the amount claimed or requested, such as paid checks, payroll documents, relevant receipts and billing statements. Appropriate documentation to fully justify the loan amount requested is essential.
3. Failure to adjust payroll for salaries exceeding $ 100,000. The PPP rules state that annual salaries are capped at $ 100,000 per employee for the purposes of calculating payroll. If borrowers fail to make this adjustment, the PPP application will likely be rejected and / or the amount of the discount will be reduced. Applicants should carefully follow the rules regarding the $ 100,000 salary cap to avoid making this mistake.
4. Incorrect trade names and TINs. A typo of a letter or number could create a serious processing problem with your loan application or your forgiveness request, or both. Accurate business names and tax identification numbers (or a Social Security number, if applicable) are essential in establishing that your business exists, is active, and in good standing with the IRS.
5. Omit proof that the business was in operation on February 15, 2020. To be eligible for a PPP loan, businesses must be in operation since February 15, 2020. The PPP was not designed to help owners start new businesses during the pandemic; it was to help existing businesses continue to pay their staff. Providing proof that a business was in operation on the required date is an absolute requirement for the approval of a PPP loan.
It all comes down to the details for borrowers who want to maximize their chances of PPP loan application approval, and mistakes can also cost them all or part of their loan cancellation. Whether small business owners are looking for their first or second P3 loan, they can feel more confident if they take the time to pay attention to the details.
Mark Schmidt is CEO of Fund-Ex Solutions Group, an SBA Preferred Lender and one of 14 non-bank loan companies authorized by the SBA to offer 7 (a) Loans and the Paycheck Protection Program. Visit fundexsolutions.com for more information.